New data from the Internal Revenue Service shows that New York and California lost over $90 billion in income during Covid as taxpayers moved to other states, accelerating the trend of high-earners relocating to lower-tax areas. The income flight from high-tax states to low-tax states, which has been happening for years, picked up steam during Covid. The biggest winner in the migration has been Florida, which gained a net 128,000 households in 2021, bringing over $39 billion in income, according to the IRS data. Texas was also a winner, adding $11 billion in income. 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 number of super-earners, like hedge fund executives and private equity chiefs, also moved to Florida during the pandemic. Those groups tend to be among the largest single taxpayers in New York, New Jersey and Connecticut.
Many Democrats say the income flight is overstated, since the number of millionaires in New York and California remains at or near all-time highs. They say that as federal aid winds down and tax revenue starts to decline, states should raise taxes on the wealthy. New York legislators battled last month for a tax increase on New Yorkers earning more than $5 million a year, yet Gov. Kathy Hochul blocked the move. 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.