Tax Exodus From Blue States Accelerates Fiscal Crisis

An unmistakable pattern is emerging in the American economic landscape, sending ripples through the fiscal status quo. A recent analysis by, an online real estate portal, unveiled a sobering reality for high-tax states: affluent taxpayers are leaving in droves. As the saying goes, money goes where it is treated best, and the destinations of choice for wealth migration are states with more favorable tax environments, such as Florida and Texas.

Primarily, the two states hit hardest by this exodus are New York and California, known for their high taxes and cost of living. These two states alone experienced a combined loss of about $92 billion in tax revenue over 2021 and 2020. According to the analysis, California lost over $340 million in IRS tax revenue in 2021.

This loss of tax income isn’t just a fiscal concern; it’s also driving demographic changes. For instance, California’s population decreased by about half a million between April 2020 and July 2022, translating into approximately 1.2% of the state’s population. California lost a House seat for the first time since achieving statehood in 1850 due to its declining population.

These departures are more than mere numbers. They signal a shifting sentiment about the direction of these states’ political and economic policies. As noted in the analysis, despite California’s abundant attractions and opportunities, its high personal income tax rates appear to dissuade many high-wealth individuals. If this trend continues, we could see an acceleration of the wealth migration out of California, further affecting the state’s fiscal health.

However, where some states face losses, others gain. Florida and Texas have reaped the most tax income benefits from this migration. Florida saw a tax revenue increase of $12.4 billion from new residents, while Texas gained $10.7 billion from new arrivals. These states successfully attract high-income earners, demonstrating the power of economic incentives and the freedom to prosper without burdensome taxes.

Another telling pattern is that three out of the top five states losing tax revenue, including Illinois, New Jersey, and Massachusetts, are all predominantly Democrat.

Critics downplay the migration away from blue states, labeling it a mere “drop in the bucket” compared to these states’ total budgets. But a closer look reveals a more significant issue. For example, California Gov. Gavin Newsom (D) announced in May that the state’s budget deficit had grown to nearly $32 billion, about $10 billion more than his January forecast. This financial shortfall was primarily due to lower-than-expected tax revenue.

While the implications of these trends are clear, the solutions are less so. Will high-tax states like New York and California rethink their tax policies to attract and retain their tax base, or will they continue their current course and risk exacerbating their fiscal challenges?