California: The state where people don’t move

IRS data for 2015 shows 207,861 tax filers — a good estimate of households — from other states lived in California the year before. We may miss those old relatives or friends, but they add up to only 1.48 percent of 14 million California filings. Only Michigan had a lower exits-to-population ratio. (Images compiled from Wikimedia Commons)

By: Jonathan Lanser
May 7, 2017
Orange County Register

Just about nobody is leaving California. And that might be a problem.

Federal tax data shows California is the second-best state in terms of keeping its taxpayers when the state’s huge population and its massive economy are taken into account.

I loaded some fresh IRS statistics about the 2015 filing season (latest available) into my trusty spreadsheet to see if the tax agency’s migration statistics would tell us the same story that census data did: Claims that Californians are departing in relatively huge numbers are totally overblown.

What I found confirms some earlier research I did with census data, which shows proportionally few Californians are leaving for elsewhere in the nation.

Now, IRS data isn’t perfect. It tracks those who filed federal returns, so it misses those who don’t file — a group that includes the youngest and oldest people, poorer folks and undocumented workers. It also captures a financial snapshot of the year after any relocation. Still, it’s a tally of a valuable commodity: folks with taxable income.

California’s population grows primarily through births and foreign immigrants. And that growth is stymied a bit by various headaches and challenges that nudge some people to leave. But moving is part of life. And if you believe that California should work harder to keep its residents, you should study examples of places with better track records of retaining population.

A great employer typically has a high level of long-time employees. Top retailers have a huge flock of repeat customers. And California has a low rate of folks moving to other states.

Who’s leaving?

IRS data for 2015 shows 207,861 tax filers — a good estimate of households — from other states lived in California the year before. We may miss those old relatives or friends, but they add up to only 1.48 percent of 14 million California filings. Only Michigan had a lower exits-to-population ratio.

California’s departure rate is far less than the national norm, which shows movers between states account for 2.14 percent of all U.S. filers. States that did a poor job at keeping its taxpayers included Utah (losing 2.33 percent of its filers); Arizona (2.72 percent); and Nevada (3.32 percent). These Western states, frequently cited as popular places for ex-Californians, have out-migration challenges, too.

To be sure, it’s eye-catching to see what departing Californians took with them: a combined taxable income of $16 billion in 2015. When you consider total incomes of Californian filers of $1.22 trillion, though, the outflow is only 1.3 percent of dollars earned – again, the second-best rate among the states (behind Michigan) and better than the national average of 1.8 percent.The data also shows us the incomes that move with migration patterns.

Who’s leaving the state? IRS data suggest those with less wealth: the average income of movers was $77,000 per filing in 2015 vs. $87,000 statewide. But the tax data also shows California’s ability to retain population beats the national average at all six income levels broken out by the IRS — from those with little income to those making $250,000 or more.

Please note that one bit of homebuying data also shows Californians are pretty geographically stable.

When Attom Data Solutions ranked five dozen major U.S. markets for how long recent home sellers had lived in their homes, five of the 12 markets with the greatest tenure were in California. Plus, the average length of ownership had grown by two years since 2012 to above 10 years in some cases.

Who’s coming?

What is very dispiriting about California population data is how poorly the state fares in attracting new residents. The tax data clearly shows that challenge.

In 2015, California gained 197,200 new filers with total incomes of $13.9 billion. But that’s tiny vs. the state’s huge population and economic heft. On a per-capita basis, only four states — Michigan, Ohio, Wisconsin and Illinois — fared worse in bringing in new taxpayers.

So, why have you heard tales of data showing large numbers of Californians leaving the state?

One often quoted metric is what is called the “net migration“– the difference between inbound and outbound.

Yes, population and tax data shows California with a negative net migration – more departures than arrivals. However, the seemingly large raw number of California exits is actually relatively modest when you compare it to the state’s scale as the nation’s most populous state.

IRS data shows 10,700 more departing Californian filers than arrivals, moving a “net” income of $2 billion out of state. Only three states — New York, Illinois and New Jersey — lost more “net” dollars in 2015. But when you see that net outflow in terms of California’s $1.11 trillion in taxable income, the state ranks 27th — middle of the pack – in proportional net income loss.

What’s next?

California is great at retention and terrible at attraction, which adds up to being average at overall population advances. For example, the state’s population and the nation’s grew at the same 0.7 percent rate in 2016.

The state isn’t perfect, but the imagery of Californians being forced to leave isn’t an honest backdrop to numerous policy debates for various political ideologies.

Conservatives like to argue against the high level of taxes and regulations and demand pro-business reforms. Liberals often say California is too expensive for the typical resident and campaign for various social programs. But each side frequently claims these blemishes motivate Californians to leave in droves.

But what should really be debated is how California’s warts and quirks impact its ability to get more people to RELOCATE TO California because there is no exodus to other states.

California’s limited attractiveness to out-of-staters runs counter to common thinking that the state’s huge job market – along with natural beauty and great climate – are enticing lures. Migration stats suggest the Californian mystique isn’t selling across state lines.

What’s equally puzzling at the same time: Should a state that’s often criticized for being crowded with limited or aging infrastructure battle to get more people to juggle?

Where would they live? What roads would they clog? Could California really handle a major influx of new residents? Not to be crass, but would more departures from California ease the congestion?

Be careful what you wish for. Growth can equal wealth. But only if handled correctly.