Between 2020 and 2022, Los Angeles will lose nearly 2% of its population. While San Francisco’s exodus of 7.5% is worse, these cities are not alone. People also fled San Jose, Long Beach and Oakland. It’s not just that people are leaving the state; where they fled was the same scene.
Based on IRS data, about half of Californians who migrated to other states moved to just five – Texas, Arizona, Nevada, Washington and Florida.
What do these states have in common? Four of these states do not impose an income tax. One, Arizona, imposes a 2.5% flat income tax. Compared to our 13.3% top rate, these ex-Californians, who earn nearly 40% more than the average Golden State household, are saving more money.
People are clearly leaving California because of bad public policy choices. State roads are poorly maintained. Can’t afford the cost of living. The streets are unsafe, the homelessness problem continues to worsen, and economic opportunities are scarce.
These results are consistent with the new index of the Pacific Research Institute Free Cities that I authored to rank the 50 largest cities, even a city promoting pro-growth policies has a big impact on whether where people decide to live and where businesses decide to invest.
Los Angeles ranks second worst on the list for pro-growth cities, while Long Beach is fifth worst in the country. California has three of the worst five cities on the list, with Oakland ranking last.
The study grouped 50 major cities based on the latest population trends. There are 17 cities whose population has decreased by more than 1% between 2020 and 2022 (which we call declining cities), 19 cities whose population has changed between a 1% decrease and a 1% increase (called stagnant cities) and 14 cities whose population population grew by more than 1% (called growth cities).
There are important lessons in these three categories for California lawmakers.
First, consistent with the California exodus, declining cities impose high state and local marginal income tax rates (9% on average), while growth cities impose a cheaper tax burden (average which is 3%). The tax burden in stagnant cities averages 5.5%. Cities and states with high tax rates prevent individual entrepreneurs from starting a new small business and they prevent large employers from expanding existing businesses and creating jobs vs. in low tax towns.
Shrinking cities also burden average families with higher combined sales, income and property tax burdens. The average burden from these taxes is more than 22% higher in declining cities compared to growing cities. Not surprisingly, the tax burden of California cities is one of the highest.
Many Californians are willing to pay a higher tax burden if it means a higher quality of life, good schools, and superior public services. But the opposite is true. On many issues from affordability to regulations, declining cities have the most anti-growth policy environments while growth cities have policy environments that encourage growth and quality of life.
California’s elected officials should learn from these troubling trends. If they pay attention, they will see that high taxes, poor service, and anti-growth policies are driving away businesses, jobs, and people. By adopting policies that make cities more affordable and attractive, they can actually encourage businesses to locate there and expand, and create jobs and taxes.
Historically, California’s cities have been key drivers of nationwide economic development and technological innovation. They promote the latest scientific advances and invigorate artistic expression. Without healthy population trends, California cities will fail in their efforts to serve these important roles.
Between 2020 and 2022, Los Angeles will lose nearly 2% of its population. While San Francisco’s exodus of 7.5% is worse, these cities are not alone. People also fled San Jose, Long Beach and Oakland. It’s not just that people are leaving the state; where they fled was the same scene.
Based on IRS data, about half of Californians who migrated to other states moved to just five – Texas, Arizona, Nevada, Washington and Florida.
What do these states have in common? Four of these states do not impose an income tax. One, Arizona, imposes a 2.5% flat income tax. Compared to our 13.3% top rate, these ex-Californians, who earn nearly 40% more than the average Golden State household, are saving more money.
People are clearly leaving California because of bad public policy choices. State roads are poorly maintained. Can’t afford the cost of living. The streets are unsafe, the homelessness problem continues to worsen, and economic opportunities are scarce.
These results are consistent with the new index of the Pacific Research Institute Free Cities that I authored to rank the 50 largest cities, even a city promoting pro-growth policies has a big impact on whether where people decide to live and where businesses decide to invest.
Los Angeles ranks second worst on the list for pro-growth cities, while Long Beach is fifth worst in the country. California has three of the worst five cities on the list, with Oakland ranking last.
The study grouped 50 major cities based on the latest population trends. There are 17 cities whose population has decreased by more than 1% between 2020 and 2022 (which we call declining cities), 19 cities whose population has changed between a 1% decrease and a 1% increase (called stagnant cities) and 14 cities whose population population grew by more than 1% (called growth cities).
There are important lessons in these three categories for California lawmakers.
First, consistent with the California exodus, declining cities impose high state and local marginal income tax rates (9% on average), while growth cities impose a cheaper tax burden (average which is 3%). The tax burden in stagnant cities averages 5.5%. Cities and states with high tax rates prevent individual entrepreneurs from starting a new small business and they prevent large employers from expanding existing businesses and creating jobs vs. in low tax towns.
Shrinking cities also burden average families with higher combined sales, income and property tax burdens. The average burden from these taxes is more than 22% higher in declining cities compared to growing cities. Not surprisingly, the tax burden of California cities is one of the highest.
Many Californians are willing to pay a higher tax burden if it means a higher quality of life, good schools, and superior public services. But the opposite is true. On many issues from affordability to regulations, declining cities have the most anti-growth policy environments while growth cities have policy environments that encourage growth and quality of life.
California’s elected officials should learn from these troubling trends. If they pay attention, they will see that high taxes, poor service, and anti-growth policies are driving away businesses, jobs, and people. By adopting policies that make cities more affordable and attractive, they can actually encourage businesses to locate there and expand, and create jobs and taxes.
Historically, California’s cities have been key drivers of nationwide economic development and technological innovation. They promote the latest scientific advances and invigorate artistic expression. Without healthy population trends, California cities will fail in their efforts to serve these important roles.
Reversing California’s troubling outmigration trend requires local policy leaders to build policy environments that reward entrepreneurship, lower taxes, make it easier to start or expand a business and create jobs, and provide core public services at an efficient cost.
Wayne Winegarden, Ph.D. is a senior fellow in Business and Economics at the Pacific Research Institute. His latest study, The Free Cities Index, is available at www.pacificresearch.org
