‘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

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.

Earn cash back on what you buy most

Maximize your spending and earn up to 6% cash back on groceries, streaming, gas, and more. Whether it’s everyday purchases or splurges, this card puts money back in your pocket.

Learn more

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.

Texas and Florida experienced the highest population growth in 2023, according to Census data, with gains of 473,453 people and 365,205 people, respectively. Both states have no personal income tax — which could help wealthy individuals save thousands of dollars each year.

These tax-friendly states are particularly attractive to retirees, who don’t want to lose a sizable cut of their retirement benefits to the taxman.

If you’re considering moving states because you’re tired of paying high income taxes, it’s important to remember that personal income tax rates only tell part of the tax story.

You have to consider each individual state’s personal income tax brackets and the available deductions, exemptions and credits. Also remember that property and sales taxes can impact a state’s affordability.

For example, while Texas — the most popular destination for Californians — has no state income tax, it has one of the highest effective property tax rates in the country, at 1.68%. In a similar vein, tax-friendly Tennessee has the highest sales tax in the country, at 9.548%.

Of course, it is not just tax rates causing Californians to leave the Golden State, but that is a major factor — and it may end up hurting those who choose to stay, if the state’s economy suffers as a result.