Data Shows that California and New York Lost $90 Billion in Tax Revenue During COVID

Some of the far-reaching financial consequences of the COVID pandemic are only now becoming apparent. Thanks to new IRS data, we finally know just how much of an impact the pandemic had on tax revenues in certain states.

The Figures

Overall, the new data found that California and New York lost $92 billion in tax revenue. Instead, this tax revenue went to low-income states.

To put it into perspective, compare the income losses for these two states in 2021 to the combined losses in 2019. Pre-pandemic, in 2019, California and New York’s combined losses were a third of what they were in 2021. In other words, those losses tripled during the pandemic.

The Breakdown

California had a net loss of $18 billion in 2020, followed by a net loss of $29 billion in 2021. Meanwhile, New York had a net loss of $20 billion and $25 billion in 2020 and 2021, respectively.

Other States with Lost Revenue

Illinois and New Jersey are also among the states losing tax revenue to low-tax states. In 2021, those states each lost more than $4 billion of income to Florida. California lost the same amount of revenue to Florida that year while New York lost $10 billion.

Why NY and CA Lost Tax Revenue

The reason for the loss of California and New York taxes is simple. With remote work and the other effects of the pandemic, many high earners chose to relocate to lower-tax states. Common destinations included Texas and Florida.

There had already been a trend of people moving to low-tax states from high-tax states. However, this accelerated during the pandemic.

Mostly High Earners Moved

Importantly, most of the lost tax revenue in these states comes from high earners moving. This could potentially have long-lasting consequences. For reference, New York’s average household income was $130,000 in 2021. But the average income of those who moved to Florida was $223,245. This is 64% higher than the average income of New-York-to-Florida migrants from 2019 to 2020.

Where People Are Moving

Of the various low-tax states, Florida has attracted the most people in this migration. In 2021, Florida gained 128,000 households. This led to $39 billion in tax income. For reference, Florida earned $28 billion in tax income in 2020.

This migration isn’t even necessarily spread throughout the state. The IRS data shows that Palm Beach County alone gained $11 billion in income in 2021. As a refresher, this is the county where Palm Beach, an exclusive town known for its high-earning residents, is located.

The migration to Florida also becomes clear when looking at the most recent Bureau of Labor Statistics report. It shows that Florida now has more total jobs than New York. The Bureau only began tracking these numbers in 1982, but this marks the first time that Florida has the higher figure.

Texas also added $11 billion of income. More than $5 billion of this came from California. Meanwhile, Nevada, Arizona, and North Carolina gained a combined $14 billion.

Since the Pandemic and Looking Ahead

While data from 2022 and 2023 is yet to be released, experts believe that this movement to low-tax states likely slowed down during these years. That being said, high-tax states like New York and California will likely still see high earners leaving.

However, many argue that the income migration is overstated. They point out that both California and New York have all-time highs (or close) of millionaires. They also point out that these states can raise tax rates on the wealthy, increasing revenue.

Conclusion

During the COVID-19 pandemic, many high earners moved from states with high tax rates to those with lower tax rates. California, New York, Illinois, and New Jersey all lost a fair amount of high earners. Many moved to Florida, Texas, Nevada, North Carolina, and Arizona, resulting in higher tax income for these states.

Sources:

https://www.cnbc.com/2023/05/02/new-york-california-lose-billions-in-income-to-low-tax-states.html

https://finance.yahoo.com/news/york-california-lost-combined-92b-141000663.html?