Overview: California’s Economic Change
The continued outmigration of residents—particularly high-income earners, business owners, and corporate leaders—poses profound and far-reaching implications for the future of California’s economy. Historically, California has stood as a beacon of economic vitality and innovation. With a GDP exceeding $3.9 trillion, it boasts the largest state economy in the United States and would rank among the top five national economies in the world if it were an independent country. This remarkable status has been anchored by a rich and diverse ecosystem that includes global tech giants in Silicon Valley, the entertainment industry in Los Angeles, fertile agricultural regions in the Central Valley, and critical international trade routes through ports like Los Angeles and Long Beach. For decades, California's dynamic blend of human capital, infrastructure, and investment made it a magnet for talent, ambition, and entrepreneurial energy.
However, that foundation is now being tested by intensifying demographic and financial shifts. As thousands of individuals and businesses exit the state each year, California finds itself at a crossroads. The reasons for this exodus are complex but interwoven: high taxes, cost of living, housing unaffordability, regulatory burdens, and crime in some urban areas have all contributed to a growing perception that California is no longer the optimal environment for success. What was once a destination for dreamers and doers is now becoming a departure point for entrepreneurs and employers looking for more favorable conditions. Importantly, this trend is not limited to middle-class residents seeking lower expenses—it increasingly includes ultra-high-net-worth individuals, founders of influential startups, and Fortune 500 companies shifting headquarters and operational hubs to states like Texas, Florida, Nevada, Tennessee, and North Carolina.
This mass outmigration has set off a cascade of economic consequences, touching nearly every sector of California’s economy. One of the most immediate and quantifiable effects is the erosion of the state’s tax base. California’s progressive income tax structure relies heavily on a relatively small group of top earners to finance a broad range of public services. According to the California Franchise Tax Board, the top 1% of earners contribute nearly half of all personal income tax revenues. When these individuals relocate, they not only move their earned income out of state but also their capital gains, dividends, and business profits—sources of revenue that are vital to funding everything from K-12 education and Medi-Cal to transportation infrastructure and wildfire prevention. The California Legislative Analyst’s Office (LAO) has cautioned that if this trend continues, it may result in chronic structural budget deficits, especially during economic downturns when capital gains receipts decline precipitously.
Beyond the budgetary implications, California's consumer economy is also experiencing a noticeable contraction. High-income individuals tend to be high-spending consumers. Their departure significantly reduces demand for luxury retail, upscale hospitality, private services, and even philanthropic contributions to local institutions. Businesses that cater to these clientele—boutiques, high-end restaurants, private health clinics, and arts organizations—are seeing revenue shrink and, in some cases, are shuttering altogether. This is particularly damaging for cities like San Francisco, Beverly Hills, and Palo Alto, where much of the local economy is tied to an affluent customer base. The resulting business closures contribute to rising commercial vacancy rates and a decline in employment opportunities, further undermining local economic stability.
The real estate market—long a central pillar of California’s economic engine—is undergoing notable fluctuations as a result of shifting migration patterns. In high-cost regions such as Silicon Valley and the Westside of Los Angeles, decreased demand for luxury housing is leading to price stagnation, longer listing times, and in some cases, outright devaluation. Developers are pulling back on new projects, wary of oversupplying a market that is no longer guaranteed to absorb high-end inventory. Meanwhile, the broader housing market shows a mixed picture: some suburban and inland areas are experiencing modest price relief, potentially increasing affordability for local buyers, but this trend is not uniform and does not necessarily signal long-term stability. Moreover, reduced property tax revenue—especially from high-value properties—could strain municipal budgets, affecting everything from school funding to local emergency services.
Employment trends are also shifting in troubling ways. As companies relocate to states with lower operational costs, more favorable tax codes, and business-friendly regulatory environments, California loses not just current jobs but also future economic opportunities. The state is already seeing signs of reduced job creation in sectors that once anchored its economic identity. Major tech firms have announced hiring freezes or office closures, while manufacturers and logistics companies have moved operations out of state to avoid high energy costs and regulatory compliance burdens. At the same time, the rise of remote work has decoupled the physical presence of employees from their employers. Skilled professionals can now retain employment with California-based firms while residing in lower-cost states, weakening the state’s connection between workforce activity and local economic development.
The broader implications of these trends are alarming. Reduced tax revenue diminishes California's fiscal flexibility at a time when public needs are increasing. Declining consumer demand challenges the vibrancy of local businesses and regional economies. A softening real estate market affects everything from employment in construction to investment in local infrastructure. And a shrinking employment base makes it more difficult to sustain the innovation and productivity that have long been California’s competitive advantage. Perhaps most significantly, continued outmigration could tarnish California's global brand as a place of opportunity and prosperity, undermining its ability to attract the next generation of talent, investment, and enterprise.
Which States are Gaining Californians?
Florida: The Sunshine State’s Affordability and Lifestyle
Florida is a top destination for Californians seeking a lower cost of living and a warm climate. Home prices in Florida are roughly half of what they are in California. There's no state income tax, which provides an immediate financial benefit to new residents. The state offers a pro-business environment, growing industries in finance and healthcare, and a vibrant lifestyle with year-round outdoor activities. While growth has created some infrastructure challenges, Florida’s mix of affordability, tax relief, and lifestyle continues to attract thousands.
Households Gained: 17,860
Colorado: Rocky Mountain Appeal and Economic Growth
Colorado attracts Californians with its combination of strong job markets and outdoor lifestyle. The cost of living is lower than California, with more affordable housing and lower taxes. Cities like Denver and Boulder have growing tech and aerospace industries. Outdoor recreation and a health-conscious culture are major draws. Californians find they can maintain their careers while upgrading their quality of life.
Households Gained: 7,200
Texas: The Lone Star State’s Low Costs and Booming Economy
Texas consistently ranks among the top destinations for relocating Californians. With no personal income tax and affordable housing, it’s an appealing place for families and businesses alike. Major companies have moved operations to Texas, creating jobs and drawing skilled workers. Cities like Austin and Dallas offer robust economies, cultural scenes, and lower daily costs. Texas offers more space and opportunity with fewer financial barriers.
Households Gained: 16,600
North Carolina: Affordable Living and a Business-Friendly Climate
North Carolina offers a surprising alternative for Californians. Its low housing prices, mild climate, and growing job markets in finance and tech make it appealing. The state has flat, low taxes and is eliminating corporate income tax. Cities like Raleigh and Charlotte provide cultural amenities, strong healthcare, and family-friendly communities. It’s a state where transplants can find economic opportunity and affordable living.
Households Gained: 5,210
Washington: Pacific Northwest Opportunity and No Income Tax
Washington offers a West Coast lifestyle with no state income tax. Seattle is a hub for tech and global companies like Amazon and Microsoft. While Seattle housing is costly, it’s still more affordable than many California metros. Outside Seattle, housing is even more accessible. Washington’s natural beauty and culture of outdoor living attract those seeking an active lifestyle and economic stability.
Households Gained: 3,830
This map represents the states which the most households are moving to from California
Decline in California Tax Revenues
One of the most immediate and consequential effects of California’s outmigration trend is the erosion of its tax base, particularly among the state’s wealthiest individuals. California operates under a highly progressive income tax system, which means that the financial burden of funding public services is disproportionately borne by top earners. In fact, according to data from the California Franchise Tax Board, the top 1% of income earners contribute nearly 50% of all personal income tax revenues, making them a foundational pillar of the state’s fiscal architecture. When even a fraction of these high-income individuals choose to relocate to lower-tax states such as Texas, Florida, or Nevada, the consequences are profound and immediate. The departure of these earners not only reduces total income tax collected but also undermines long-term fiscal sustainability by diminishing the reliability of California’s primary revenue stream.
This issue is particularly acute in California due to the state’s outsized dependence on volatile sources of income like capital gains and business income—both of which are common among the wealthy. California does not differentiate its tax treatment of capital gains earned from in-state or out-of-state investments, meaning once an individual relocates, the state loses the entirety of that revenue stream. This creates a compounding effect: it’s not just earned income that disappears, but also investment income, business profits, and estate taxes, all of which might have been realized within California’s borders had the individual remained. Many of these high earners are also entrepreneurs or investors who actively contribute to local economies through business formation, venture capital, and philanthropic giving. Their exit drains not only tax dollars, but also the economic dynamism they generate.
The consequences of this exodus are far-reaching. As revenue shrinks, California is left with fewer funds to support core public functions. Public education—already challenged by disparities in funding across districts—relies heavily on state tax dollars for teacher salaries, classroom materials, and infrastructure improvements. Transportation systems, including road maintenance, public transit, and long-term sustainability projects, become more difficult to fund consistently. Healthcare services, especially those provided through state Medicaid programs like Medi-Cal, may see cutbacks or underfunding. Public safety departments, from law enforcement to fire response, face hiring freezes, slower response times, or outdated equipment. And essential social programs for housing assistance, mental health care, and family support become harder to sustain, even as demand for these services continues to grow amid rising costs of living.
The California Legislative Analyst’s Office (LAO) has issued multiple warnings about the long-term risks of this shifting tax landscape. In its fiscal outlook reports, the LAO has emphasized that continued outmigration among high-income earners could result in chronic budget shortfalls, particularly during recessions or periods of economic instability when revenues naturally decline. Unlike consumption taxes or property taxes, which remain relatively stable, California’s overreliance on personal income tax from top earners creates volatility in its budget planning. A single year with fewer IPOs or a downturn in the tech sector—where many of the state’s top earners reside—can drastically reduce capital gains tax collections and leave the state scrambling to meet budget obligations.
Further compounding this risk is the potential for a negative feedback loop. As the tax burden shifts to the remaining residents—particularly middle-income earners—California may face pressure to raise rates or eliminate deductions to compensate for lost revenue. These measures, while fiscally necessary in the short term, risk driving even more individuals and businesses to reconsider their place of residence. Alternatively, if the state chooses to balance the budget through spending cuts, the impact could be equally damaging: diminished service quality in schools, longer wait times in healthcare systems, reduced infrastructure development, and an eroded sense of public trust in government. Either outcome—higher taxes or reduced services—has the potential to accelerate the very outmigration trend California is struggling to contain.
This broader fiscal imbalance not only affects the state budget but also undermines investor confidence and long-term economic planning. Cities and municipalities, reliant on state-level support for key programs and grants, may find themselves facing shortfalls of their own. Credit rating agencies could revise their outlooks, increasing borrowing costs for infrastructure and public works. Businesses might hesitate to expand or hire if they perceive an unstable fiscal environment with unpredictable tax policy.
In short, the departure of California’s high earners is not simply a matter of individual relocation—it represents a systemic challenge with the potential to reshape the state’s economic future. It disrupts the state’s core financial model, threatens the quality and accessibility of public services, and imposes tough decisions on policymakers regarding how to distribute a shrinking pool of revenue. Unless addressed with thoughtful, forward-looking policy, the continued erosion of the state’s top tax base could set off a fiscal reckoning that affects every Californian—whether they choose to stay or go.
Texas
Texas does not have a personal income tax. Businesses instead pay a franchise tax based on revenue, with rates of 0.375% or 0.75% depending on business type.
North Carolina
North Carolina uses a flat 4.25% personal income tax rate, which is gradually being reduced. The corporate income tax is 2.25% in 2025 and is scheduled to be phased out entirely by 2030.
Florida
Florida does not impose a personal income tax on residents. Corporations, however, pay a 5.5% tax on their federal taxable income as adjusted by Florida rules.
Washington
Washington has no personal income tax, though it imposes a 7% tax on long-term capital gains over $270,000. Instead of corporate income tax, it uses a Business & Occupation (B&O) tax on gross receipts, with rates varying by business type.
Colorado
Colorado uses a flat 4.25% income tax rate for both individuals and corporations. This simplified structure applies equally to all income levels and business sizes.
This map represents income tax in the states which most Californians are going
Reduced Economic Activity
Beyond the immediate hit to tax revenues, the departure of affluent residents and businesses inflicts deeper wounds on the private economy. Wealthy individuals aren’t just taxpayers—they are also major consumers, investors, and cultural contributors. Their spending habits create a ripple effect across multiple sectors, especially in industries that thrive on discretionary income. When these individuals relocate, entire economic ecosystems feel the impact.
Luxury Markets and High-End Services Contract
Affluent residents tend to support a network of high-margin businesses that include luxury retail stores, fine dining establishments, private healthcare practices, art galleries, personal finance firms, private schools, and exclusive service providers like bespoke fitness trainers or personal stylists. These businesses often rely on a relatively small, loyal client base rather than volume. As this base erodes, many of these establishments are left with unsustainable cost structures. The result is a cascade of layoffs, reduced hours, or even full closures—particularly among small businesses that lack the flexibility or scale to adapt quickly.Local Economic Shrinkage and Real Estate Volatility
Communities such as Beverly Hills, Silicon Valley, and Orange County have long benefited from the concentrated wealth of high-earning professionals, entrepreneurs, and investors. Their departure isn’t just a matter of vacant homes or lower local tax revenue; it disrupts the entire microeconomy. Real estate markets begin to shift—high-end properties may sit unsold or depreciate in value, which impacts both municipal property tax receipts and investor confidence. Local restaurants, boutiques, and service businesses that once flourished with a steady stream of affluent clientele may experience prolonged slowdowns, jeopardizing employment and regional economic stability.Stagnation of Investment and Innovation
Wealthy individuals are not only consumers—they’re often catalysts for innovation. They invest in startups, fund real estate developments, and donate to hospitals, universities, and arts institutions. When they move their capital elsewhere, innovation pipelines may dry up. Fewer angel investors and venture capitalists mean fewer startups can get off the ground. Fewer philanthropic contributions can lead to budget constraints for museums, research centers, and educational programs. Over time, this can dampen a region’s reputation as a hub for creativity, entrepreneurship, and civic engagement.Impact on Small and Medium-Sized Enterprises (SMEs)
Perhaps most critically, the exodus of high-net-worth individuals disrupts the financial lifeblood of small and medium-sized businesses. These enterprises often lack the capital buffers or national reach to absorb sudden downturns. A neighborhood bakery, for example, might lose catering orders from corporate events or private parties hosted by wealthy clients. A local accountant may see fewer high-value clients as professionals relocate. Over time, this can lead to a vicious cycle: decreased revenue forces staff cuts, which reduces service quality, which then further diminishes customer retention.Broader Economic Stagnation and Social Effects
As economic velocity declines, so does the vibrancy of local economies. Money that once flowed fluidly through service industries, cultural venues, and charitable initiatives slows down, contributing to a sense of stagnation. Civic pride can wane, infrastructure improvements may be delayed, and public-private partnerships may dissolve. What once were thriving, innovative communities can start to feel hollowed out—left with infrastructure built for a population that no longer exists.In essence, the departure of the wealthy creates a domino effect that extends far beyond the balance sheets of state governments. It disrupts job markets, chills investment, weakens consumer confidence, and gradually reshapes the character and capacity of local economies. And while high earners may relocate swiftly, the economic and social aftershocks often linger for years.
Texas
Texas experienced strong growth due to its diverse economy, including gains in energy, tech, and professional services.
Economic Activity: +3.4%
North Carolina
North Carolina saw broad-based growth, especially in construction, manufacturing, and finance, contributing to a resilient economic trajectory.
Economic Activity: +3.4%
Florida
Florida was one of the fastest-growing states, benefiting from rapid in-migration, real estate development, and service sector expansion.
Economic Activity: +4.6%
Washington
Growth was driven by strong performance in the information and tech sectors, maintaining the state's position as a leader in innovation.
Economic Activity: +2.9%
Colorado
Colorado showed moderate growth, with solid contributions from professional services and healthcare, though slower than its post-pandemic rebound in 2021.
Economic Activity: +2.0%
California
While California maintained +3.2% economic activity growth, the volatility between small-cap and large-cap companies was vast. Small and medium-sized businesses struggled to keep up with large online platforms such as Uber, DoorDash, Disney, and others that drove economic gains. This variety caused an average amount of growth across the entire statewide economy, but still shows the breakdown of growth California previously boasted.
This map represents economic growth in states Californians are moving to
Housing Market Fluctuations
Real Estate Slowdown and the Ripple Effects of Outmigration in California
The outmigration trend in California is not just a demographic shift—it’s a destabilizing force with profound implications for one of the state’s most critical economic pillars: real estate. Long considered both a symbol and engine of California’s prosperity, the real estate market has historically generated immense wealth for individuals, sustained countless jobs, and funded public services through property taxes and transaction-related revenues. However, as high-income earners and middle-class families increasingly exit the state in search of lower costs and more favorable tax environments, demand in key housing markets is starting to soften, especially in high-cost urban centers.
Cooling of Formerly Red-Hot Markets
Cities like San Francisco, San Jose, and Los Angeles were once the poster children of housing scarcity and sky-high valuations. Now, however, homes in these areas are sitting on the market for longer periods, and bidding wars have cooled significantly. According to Zillow and Redfin reports from late 2023, median listing prices in San Francisco declined year-over-year for the first time in over a decade, and rental rates in some luxury segments have also softened. For first-time buyers, this may appear to be a long-overdue correction, offering a rare window of affordability. But for homeowners, investors, and municipalities, it signals a more worrying trend: stagnating or falling home values mean less equity, slower property tax growth, and declining real estate transaction activity—each of which can erode local government budgets.
Devaluation and Oversupply in the High-End Market
Luxury real estate has been hit particularly hard. Upscale neighborhoods in Silicon Valley, the Hollywood Hills, and coastal enclaves like Malibu and Newport Beach are seeing diminished demand for multi-million-dollar homes. The buyer pool—once flush with tech entrepreneurs, foreign investors, and coastal elites—has been shrinking, not only due to outmigration but also due to higher interest rates and growing regulatory hurdles. As a result, developers are sitting on unsold inventory, and sellers are increasingly forced to lower asking prices or offer incentives just to close deals. The prestige and value of these properties are tied not only to their location and features but also to market exclusivity and liquidity—both of which are now in jeopardy.
Drag on Broader Economic Sectors
The ripple effects of a slowing housing market extend far beyond realtors and developers. Construction companies, already facing high labor and material costs, may reduce headcounts or delay new projects as demand wanes. Mortgage lenders face reduced origination volume, especially in the jumbo loan segment common to high-end California homes. Ancillary services—from title companies and inspectors to landscapers, movers, and home improvement retailers—also suffer when fewer homes are being bought, sold, or renovated. Even local governments feel the squeeze, as transfer taxes, permit fees, and property-based assessments begin to dip—cutting into funding for schools, fire departments, and infrastructure.
Impacts on Consumer Confidence and Wealth Perception
Housing is more than a commodity; for many Californians, it represents the bulk of personal wealth. When home values flatten or decline, it affects household net worth and, in turn, consumer spending. A homeowner who feels less financially secure is less likely to make large purchases, invest in renovations, or expand a small business. Economically, this phenomenon—known as the "wealth effect"—can slow growth in sectors far removed from real estate. Psychologically, it can foster uncertainty and discourage new investment, even among those not directly involved in property transactions.
Tax Revenue Risks and Budgetary Pressure
Finally, the slowdown poses fiscal risks for a state that depends heavily on real estate-related revenue. Property taxes—while more stable than income or sales taxes—are still subject to fluctuations due to reassessments and market activity. Fewer transactions mean less income from capital gains, transfer taxes, and real estate investment profits. Local governments, especially in areas heavily reliant on high-value properties, could face funding gaps if these trends persist. This, in turn, could affect public services, infrastructure maintenance, and long-term planning for housing and transit development.
Texas
Texas experienced strong growth due to its diverse economy, including gains in energy, tech, and professional services.
Median Home Value: +7%
North Carolina
North Carolina saw broad-based growth, especially in construction, manufacturing, and finance, contributing to a resilient economic trajectory.
Median Home Value: 1.4%
Florida
Florida was one of the fastest-growing states, benefiting from rapid in-migration, real estate development, and service sector expansion.
Median Home Value: -2.5%
Washington
Strong performance in the information and tech sectors drove growth, maintaining the state's position as a leader in innovation.
Median Home Value: +6.6%
Colorado
Colorado showed moderate growth, with solid contributions from professional services and healthcare, though slower than its post-pandemic rebound in 2021.
Median Home Value: 1.6%
This map represents the median home value change in states Californians are moving to
Final Thoughts: A defining crossroads for California
California has long stood as a symbol of innovation, prosperity, and reinvention—a place where industries are born, ideas are scaled, and individuals from all walks of life can find opportunity. From the fertile Central Valley to the startup corridors of Silicon Valley and the creative pulse of Hollywood, the Golden State has attracted the world’s brightest minds, boldest entrepreneurs, and most ambitious dreamers. But today, California finds itself at a defining crossroads—one where its future as a global economic powerhouse is being challenged by growing internal pressures and a wave of outward migration that speaks volumes about deeper structural issues.
The departure of high-income earners, job creators, and middle-class families is more than just a matter of zip codes and U-Haul rentals—it’s a symptom of eroding affordability, tax imbalances, regulatory burdens, and a perceived decline in quality of life. As these residents and businesses relocate to more cost-effective and economically hospitable states, California is losing more than just population numbers; it is losing intellectual capital, tax revenue, investment momentum, and—perhaps most concerning—public confidence.
The consequences are already materializing across multiple dimensions. The state’s progressive tax structure, once a powerful engine for funding public services, is now exposed as highly vulnerable to fluctuations in high-earner income. Reduced tax inflows threaten essential services such as education, public safety, and healthcare. Consumer markets, particularly those catering to affluent clientele, are experiencing contractions. Housing markets in high-cost regions are cooling, causing volatility in one of California’s largest economic sectors. Meanwhile, employment is shifting, with businesses and talent relocating to cities like Austin, Miami, and Nashville—places once seen as California’s economic understudies, now rising stars in their own right.
This is a structural challenge, not a cyclical downturn. California’s issues are deeply rooted in policy, governance, and perception. High housing costs, complicated permitting processes, and unpredictable tax regimes are driving out not only the wealthy but also young professionals, entrepreneurs, and families who might otherwise have contributed to the state’s next wave of growth. Remote work has only accelerated this shift, enabling people to take their productivity elsewhere without severing professional ties.
Yet while the current trajectory is concerning, it is not irreversible. California’s assets—its talent base, its research institutions, its cultural influence, and its climate of innovation—remain immense. But unlocking that potential for future generations will require bold action, not temporary patches. Policymakers must address the root causes of outmigration: unsustainable costs of living, unpredictable tax policy, and a regulatory environment that stifles growth. Incentivizing housing development, reducing bureaucratic red tape for businesses, and protecting the state’s long-term fiscal health are not just economic strategies—they are imperatives for survival in a competitive national landscape.
California has reinvented itself before. It weathered the aerospace collapse of the 1990s, the dot-com crash, the Great Recession, and a global pandemic. Each time, the state emerged with new industries, stronger communities, and reimagined futures. This moment is no different in magnitude—it only differs in that the warning signs are clearer, and the tools for course correction are readily available. The question is whether there is the political will and collective resolve to use them.
Ultimately, California’s future depends not just on retaining its people and businesses, but on restoring a sense of shared opportunity. The promise of California has never been just about wealth—it’s about possibility. If leaders can reclaim that spirit with forward-thinking reforms and a renewed commitment to inclusivity and innovation, then the Golden State can remain what it has always aspired to be: not just a place on the map, but an idea worth building for.
This is a turning point—not an ending. Whether California steps into its next chapter as a reinvigorated leader or a cautionary tale depends on the decisions made now. The stakes are high, but so is the potential. The world is watching. And so are millions of Californians who still believe in what this state can become.