By: Nathan Frank

The effects of the COVID-19 pandemic are reverberating through the fiscal landscape of New York state, as an exodus of residents to low-tax locales has resulted in a significant decline in revenue. According to a report, tax-generated revenue in New York has plummeted by a staggering 19.5% this fiscal year, while California has seen an even more substantial drop of 24.9%, the NY Post explained.

In sharp contrast, states like Florida and Texas have experienced an influx of residents, leading to a boost in their coffers. Texas reported a remarkable 12.2% growth in state tax revenue, while Florida collected 9.9% more in levies during the same period.

The substantial disparities in revenue can be attributed to the shrinking tax bases of New York and California. Census Bureau data reveals that both states witnessed a decline in their populations, losing nearly 300,000 residents each in the year leading up to July. In contrast, Florida and Texas collectively gained 888,000 new residents, benefiting from the pandemic-fueled migration to states with lower taxes and a more affordable cost of living.

Recent data from the Internal Revenue Service further underscores the magnitude of the exodus from high-tax states. New York and California experienced a combined loss of over $90 billion in income during the pandemic. In 2021 alone, New York saw a decline of $25 billion in adjusted gross income, while California reported a net loss of $29 billion. Over the course of two years, the two states suffered a staggering loss of $92 billion in income.

Conversely, Florida emerged as a destination of choice for many, attracting an influx of income totaling $39 billion in 2021, a significant increase from the $28 billion generated the previous year. Palm Beach County alone reported a remarkable $11 billion gain in income in 2021, according to the IRS.

These shifting dynamics have significant implications for the fiscal health of states. While Florida and Texas find themselves with surplus funds, New York and California face substantial budget gaps. The recently released state budget financial plan for New York projects deficits of $5.1 billion in fiscal year 2025, $8.6 billion in fiscal year 2026, and $7.2 billion in fiscal year 2027, amounting to a total of $21 billion. In contrast, California lawmakers have managed to close a nearly $32 billion budget deficit with their approved $310.8 billion budget, which includes an extension of a tax break for the state’s film and television industry.

While California has enjoyed substantial budget surpluses in recent years, exceeding $100 billion, the current economic climate has presented challenges. Inflationary pressures and stock market struggles have slowed revenues, highlighting the state’s vulnerability to economic fluctuations, given its reliance on taxes paid by the wealthy.

In response to the significant surplus in Texas, Governor Greg Abbott has expressed his intention to pursue tax cuts. The state’s record $33 billion surplus offers an opportunity to provide relief to taxpayers and stimulate further economic growth.

The divergent fiscal fortunes of these states underscore the consequences of residents’ choices and the impact of tax policies on population migration and revenue generation. As the landscape continues to evolve, policymakers will need to navigate the complexities of fiscal planning and address the challenges posed by changing demographics and economic conditions.