‘We’re leaving!’: Rich Americans are ditching California and ‘taking their tax dollars with them.’ And the tax rates they're fleeing have now gotten even higher

What’s concerning is not how many people are leaving — the state has experienced lopsided out-migration for decades, according to the Los Angeles Times — but who is leaving.

Analysis of the approximately 750,000 people who have bid farewell to California over the last three years has revealed that thousands more high-earning, well-educated workers have left the Golden State than have moved in.

This is a problem — as Joel Kotkin, a fellow at Chapman University, told the Los Angeles Times — because: “People who are leaving are taking their tax dollars with them.”

It’s a well-known fact that California has the highest state income tax in the country. For a decade, the top income tax rate sat at 13.3%, but as of Jan. 1, the top rate was increased to an astronomical 14.4% for those earning more than $1 million.

The wealthy: ‘We’re leaving’

The new 14.4% state tax rate has far surpassed other notable high-tax states: Hawaii’s income tax bracket maxes out at 11%, while New Yorkers making more than $25 million are taxed at a rate of 10.5%.

Ultra-wealthy Californians, the top 1%, typically pay between 40-50% of the state’s personal income tax revenue. And some have clearly had enough of propping up the state’s finances.

“I’m seeing anywhere from two to five clients a month calling me and saying ‘We’re leaving,’” Todd Litman, an estate planning attorney told Sky News. “They have $1 million to $2 million sitting in their IRA and they’re saying: ‘When I retire and start pulling that IRA out, I’m going to be paying 13% state income tax, so I don’t want to do that.’ So, they’re heading out because of that reason.”

It is not just wealthy residents leaving; businesses are also exiting the state — again due to high tax rates, punitive regulations, high labor, utility and energy costs, among other things.

That loss of vital income tax is very problematic for California, which is facing a record $68 billion budget deficit, largely due to an unprecedented drop in tax revenue.

Below the top 1%

For many of the wealthiest individuals, a 14.4% income tax rate is more of an annoyance than an economic hindrance. The same cannot be said for those a few tax brackets below.

In tax years 2020 and 2021, the average gross income of taxpayers who moved from California to another state was about $137,000, according to IRS migration and personal income data.

That would place those individuals in California’s largest state income tax bracket — at 9.3% — which applies to single filers who earn between $61,215 and $312,686 per year, or married couples filing jointly with an annual income of $122,429 to $625,372.

If you earned $137,000 last year in California, your estimated state income tax for 2023 would be $9,896, according to the SmartAsset tax calculator. And if you reduced your taxable income by maxing out your 401(k) contribution at $22,500 (the 2023 total) and your IRA contribution at $7500 (for those aged 50 and older), your estimated state income tax would be around $6,827.

That’s on top of federal income tax — which, with a household income of $137,000 would be around 22-24% — plus property taxes of around 0.71% and sales tax of at least 7.25%. That’s a lot of tax to pay each year — and it has stung Californians even more in the wake of COVID-19, when the nation has battled inflation and housing costs have soared to record highs.

If not California, then where?

Several hotspots for fleeing Californians are Texas, Florida, Arizona, Tennessee and Nevada. What ties these states together? They are all very tax friendly.