Wealthiest Californians are leaving the state. It's bad news for the economy

Original Article ↗ Hacker News Discussion ↗

California’s loss of high-earning residents is being tied to a mix of high income taxes, extreme housing costs, and structural policies like Proposition 13 that keep property taxes low for long-term owners while shifting the burden elsewhere. Commenters debate whether aggressive tax enforcement and reliance on a narrow, very wealthy tax base are pushing people to lower-tax states such as Texas and Tennessee, and how much this actually contributes to California’s large budget deficit compared with market cycles and capital-gains volatility. Broader themes include the sustainability of different state tax models, the role of federal subsidies, and whether reforms to property taxation and land use are necessary to stabilize California’s finances and housing.

Tax Enforcement on Former Residents

  • Several anecdotes claim California’s Franchise Tax Board (FTB) is very aggressive with people who move out and stop filing CA returns.
  • Reports of bank accounts being levied for “estimated income tax” years later, allegedly without prior contact beyond mail to last known CA address.
  • Triggers and consistency are unclear; some leavers report no issues.
  • Advice in-thread: keep documentation, formally notify FTB of departure, and have a CPA ready if challenged.

Prop 13, Property Taxes, and Housing

  • Many see Prop 13 (property tax caps) as a root problem: constraining local revenue, pushing reliance on high income and sales taxes, encouraging NIMBYism, and locking people into homes.
  • Broad agreement that major reform is politically very hard; voters tend to think property taxes are already high.
  • Proposals floated:
    • Reassess non‑primary residences at market value.
    • Limit Prop 13 relief to one primary home and/or modest home size.
    • Move toward land value tax or ZIP‑based assessments.
  • Disputes over fairness: some argue older owners are subsidized and blocking new entrants; others say it’s unfair to “tax people out” of long‑time homes.
  • Several commenters highlight that sky‑high housing costs, more than policy minutiae, are pushing people out.

State Competition, No‑Income‑Tax States, and Federal Aid

  • Debate whether interstate “competition” is good federalism (voting with feet) or a destructive race to the bottom.
  • States with no income tax (NV, TX, WA, TN) rely more on property, sales, excise (“sin”), tourism, and fees; some argue overall burdens can be higher on the middle class.
  • Disagreement over which states are “subsidizing” others; cited data show most states, including CA, receive substantial net federal spending. How much this matters to state models is contested.

Budget Volatility, Out‑Migration, and Deficit

  • California’s highly progressive income tax means a small top slice (top 1%) provides 40–45% of PIT revenue, making the budget sensitive to markets and high‑earner moves.
  • Back‑of‑envelope calculations in the thread suggest net out‑migration of college‑educated residents explains only a small fraction of the projected $68B deficit; others counter that lost spending and secondary tax effects magnify the impact.
  • Concern that raising taxes further might accelerate a “death spiral,” but others note California’s enduring advantages (climate, geography) and past recoveries.

Cost of Living, Poverty, and Quality of Life

  • Multiple comments emphasize that California, especially Northern CA, feels untenable for anyone who didn’t buy property decades ago or isn’t very wealthy.
  • Mentions that, adjusted for cost of living, CA’s poverty rate is among the worst; high housing plus high taxes are central complaints.
  • Ex‑Californians report satisfaction in lower‑tax, lower‑cost states (e.g., TN), though some raise questions about long‑term infrastructure funding and social services there.

Water and Land Use

  • Disagreement on whether water meaningfully constrains California growth.
  • One side: residential use is a small share; the issue is misallocated agricultural water and aquifer over‑pumping.
  • Other side: central valley aquifers are depleting and subsiding; this is framed as an emerging crisis, not easily fixed by simply reallocating use.