Insights

New York and California Combined for Over $90 Billion
in Lost Income to Low-Tax States During Covid

New York and California combined lost over $90 billion in income during Covid, according to new IRS data.  It accelerated the trend of high-earners relocating to lower-tax states like Florida and Texas. The income losses for California and New York in 2021 were more than three-times their combined losses in 2019, before the pandemic took hold in the U.S.

New data from the Internal Revenue Service shows that New York State lost $25 billion in adjusted gross income due to outmigration in 2021, on top of $20 billion lost in 2020. California reported a net loss of $29 billion in 2021, following a loss of $18 billion in 2020. Combined, the two states lost $92 billion across the two years.

The data shows that the income flight from high-tax states to low-tax states, which has been happening for years, picked up steam during Covid. The income losses for California and New York in 2021 were more than three-times their combined losses in 2019, before the pandemic took hold in the U.S.

Experts say that while the income migration from states likely slowed in 2022 and 2023 from the pandemic highs, higher-tax states will continue to see outflows of high earners, thanks in part to remote work and white-collar job growth in the sun belt.

The biggest winner in the migration has been Florida: The Sunshine State gained a net 128,000 households in 2021, bringing over $39 billion in income, according to the IRS data, a huge jump from the $28 billion gained by the state in 2020. Palm Beach County, which includes the exclusive town of Palm Beach, gained over $11 billion in income alone in 2021, according to the IRS.

Nearly a third of Florida’s gain — or about $10 billion — came from New York. California, Illinois and New Jersey each lost over $4 billion in income to Florida in 2021. The income gains are rippling through the Florida economy, with a recent Bureau of Labor Statistics report showing Florida with more total jobs than New York since the Bureau started tracking the numbers in 1982.

Texas was also a winner, adding $11 billion in income. California’s loss was largely Texas’ gain, with over $5 billion moving from California to Texas.

Other winners included Nevada, North Carolina and Arizona, which gained about $14 billion in income combined.

The losses in the high-tax states also tended to be higher earners, which will have an outsized impact on tax collections over time. The average income of the households leaving New York reached an all-time high of $130,000 in 2021. The average income of New Yorkers moving to Florida was even higher, at $223,245 — a 64% jump from the average income of those who moved out between 2019 and 2020.

Both California and New York, which had budget surpluses in 2022, are now projecting deficits in 2023 and 2024. California is projecting a deficit of $24 billion in the next fiscal year. New York is projecting a deficit of over $7 billion by 2025.

The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.