With the state facing budget deficits over the past two years, California’s nonpartisan Legislative Analyst’s Office found that a loss of taxpayers who moved to other states is contributing only slightly to the shortfall, according to a report released July 31.

Newly released Internal Revenue Service statistics show the number of taxpayers leaving California increased in 2020, while the number of people moving into the Golden State remained relatively flat. The net loss of people nearly doubled from 170,000 in 2019 to more than 300,000 in 2022.

The gap in migration now is approximately equal to the one in the early 1990s, when defense and aerospace jobs disappeared after the Cold War, according to the report.

Personal income tax revenues lost to outmigration equaled about 0.5 percent of all such taxes in the years leading up to the pandemic, but the amount more than tripled to 1.6 percent in the 2022–23 fiscal year, analysts found.

The discrepancy is due, in part, to a change in the income levels of people fleeing the state, according to the report. In recent years, “more middle- and higher-income households have moved to other states,” which negatively affects state revenues because higher incomes result in higher tax payments.

Census Bureau data released in 2023 reveal more people with higher-level degrees are taking their talent, and typically their higher incomes, to other states at a faster pace than similarly educated people are moving in. That means the state is losing some of the tax base it relies on to fund its progressive tax system.

While the loss of taxpayers is impacting the state’s finances, analysts said the losses do not account for a significant portion of the 27 percent drop in revenue from the previous year.

“As state officials look to better understand the cause of the large revenue decline, it is reasonable to ask whether taxpayer outmigration was a major contributor,” analysts wrote. “Although outmigration did reduce 2022-23 revenues, it likely was only a small contributor.”

If the pace of outmigration continues, analysts said it would become more impactful. Recent outflows are reducing annual personal income tax revenue growth—which averages 7 percent over the long term—by about 1 percent, analysts concluded.

However, forecasting migration and revenue growth is challenging, according to the report.

“Migration patterns are extremely difficult to predict,” analysts wrote. “While it is possible the recent shift could represent a ‘new normal,’ there is also a good possibility it will be temporary.”

Historically, California has experienced cyclical migration patterns, though before the pandemic, the state was bringing in more people than it lost for most years, according to federal and state data.

Neighboring Arizona and Nevada and southern states—including Texas, Florida, and Tennessee—are benefiting from the California exodus, IRS statistics show. The Lone Star State netted the largest gain—about $5.5 billion in revenue in 2022 and a combined $14 billion from 2020 to 2022.

Across California, a net loss of adjusted gross income due to outmigration to foreign countries or other states was recorded for 57 of the state’s 58 counties. Only Santa Barbara bucked the trend, with a nearly $100 million increase despite losing about 3,700 people during the year.

Los Angeles County lost the largest amount of taxable income, nearly $3.4 billion, Orange County followed at more than $2.5 billion, and San Francisco slightly trailed in third, losing more than $2 billion.

H.D. Palmer, deputy director for external affairs at the department and principal spokesperson on financial issues for the governor’s office, cautioned that the IRS data does not fully account for all tax returns received due to its methodology. While the IRS data show 15.7 million returns for 2022, the state’s Franchise Tax Board received approximately 17.5 million, he said.

He added that the department is expecting migration outflows to drop significantly in 2023 based on population data released by the department in April. The outflows captured by the IRS data are reflections of post-pandemic anomalies, he suggested.

“That said, we certainly wouldn’t say that there wasn’t outmigration from California during the pandemic—there was—or that there isn’t still work to do in California to address affordability, especially in housing,” Palmer told The Epoch Times by email Aug. 1. “But it’s important to note that this represents a rear-view mirror look at what happened during a prior period that was skewed by a once-in-a-generation event—the pandemic—and isn’t necessarily a predictor of what will happen in the future.”

During his January budget proposal, Gov. Gavin Newsom rejected the notion that a loss of taxpayers was contributing to the state’s deficit.

“It’s significantly tempered,” Newsom said at the time, in response to a question from The Epoch Times. “No, I don’t think it’s playing an outsize role, at all.”

He said that others across the country and around the world will likely take advantage of opportunities presented by some leaving.

“We’re a conveyor belt for talent,” Newsom said. “And when someone decides to move out, we have 15 more opportunities for people to come in and get the benefits.”

The governor also said the Golden State mints more millionaires than any other and pointed to Bureau of Labor Statistics data that show what he called a “record-breaking” prevalence of uber-wealthy individuals making more than $50 million per year.