Climbing Tax Rate in the State
The high tax rates contribute to well-educated and high-earning individuals leaving California. The state takes around 14.4% and is expected to rise in coming years.
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Comparable states like Hawaii and New York tax their residents at 11% and 10.5%, respectively. In recent years, many tech workers based in Silicon Valley have made their way to Austin to enjoy low tax rates and wide open spaces. However, the influx of Californians caused the real estate market to become over-inflated and increasingly expensive for average individuals.
Ultra Wealthy Contribute the Most to Income Tax
The trend concerns state officials as the state’s top 1% contribute around 40-50% of the state’s income tax.
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As these wealthy individuals leave, taxes collected by the state and used for social services will begin to decline. The state is already facing heavy spending deficits and can’t afford to lose any income.
Many Large Businesses are Leaving
Tesla, Oracle, and Microsoft have all moved to transition their headquarters from the Golden State to Texas.
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Most of these large companies have invested heavily in real estate and new offices to begin enjoying the state’s zero percent corporate tax rate. Heightened costs for labor, utilities, and insurance have also affected the bottom line for many businesses.
Top Earners Fleeing the State
For the state’s biggest earners, a 14.4 percent tax rate can eat into their disposable income and become a strenuous financial burden.
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According to the IRS, from 2020 to 2021, the average income for those relocating from California was around $137,000. Earners with the most to lose have felt the need to find greener pastures.
Ruthless Real Estate Market
Another top reason for those earning a healthy income to leave the state is their inability to own a home despite being paid well above the national average.
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Home prices have skyrocketed in California, with the average detached single-family home costing around $800,000. However, this price increases in more desirable areas of the state, such as San Francisco, San Diego, and Los Angeles.
Massive Shift in Demographics
Although the population has grown in California for the first time since the COVID-19 pandemic ravaged the state, the demographics are shifting drastically.
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Wealthy individuals who could afford a better quality of life are moving out. Renters and people in desperate need of quick work, such as those in factories and service industries, are moving in.
Real Estate Bubble Bursting
Despite the outrageous cost of homes in busy areas like San Francisco, many paid over-inflated prices just a few years ago and are now facing massive losses.
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In the Bay Area, many homes purchased during the real estate boom in 2021 have sold for a loss of more than 20%. The median loss is $156,000 for the average home sold in 2024.
High Cost of Living
In addition to the staggering housing costs, the average cost of living in the state sits at 38% higher than the national average. The elevated expensive have rapidly driven people out of the state.
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Gas, food, parking, and insurance account for some of the most significant bills many face each month. The gap widens considerably in more expensive places like LA and SF, where high-wage earners can feel like they’re still living paycheck to paycheck.
Pandemic Fall Out for Businesses
Tourism and foot traffic have yet to return to pre-pandemic levels for many business owners. Many restauranteurs have floundered in recent years; the increase in minimum wage and low sales have forced many people to close brick-and-mortar locations.
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Small businesses on the Fisherman Wharf in San Francisco have reported immense losses, and many will never recover.
Expensive Legislative Measures
In recent years, the state has been plagued by new controversial bills. From expensive gas increases to quell greenhouse gas emissions to water pump fees for farmers, many residents have criticized the government’s out-of-control hand.
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These new legislations have been eating away at the wallets of residents who feel that gas, property, and income tax hikes have become unsustainable.
Strategic Moves for Better Life Quality
Many wealthy residents who work remote jobs or own businesses have discovered that relocating to less expensive states can improve life satisfaction.
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Besides increased income, many experience better public school systems, larger homes, and better healthcare after leaving California.