A notable exodus of affluent millennials is reshaping the economic landscapes of major American states. According to a recent survey by SmartAsset, California and New York, traditionally considered the nation’s economic powerhouses, are witnessing a significant outflow of young, high-earning individuals, who are instead flocking to sunnier climes in Florida and Texas. The survey, based on Internal Revenue Service data for the tax year 2021, shows that these individuals, aged between 26 and 35 and earning upwards of $200,000 annually, are choosing to relocate despite constituting a substantial tax base for their home states.
New York reportedly suffered the most significant loss of this cohort, with a net loss of 5,062, closely followed by California’s net loss of 4,995. On the flip side, Texas and Florida have seen an influx of these high-income earners, affecting various economic aspects in these states, including tax revenues, demand for housing, and potentially escalating housing costs for subsequent arrivals. This trend is largely attributed to the absence of state-level income taxes in these states, making them attractive destinations for wealthy, young professionals.
Rich Young People Migrate to Sun Belt for Financial Benefits
The Sun Belt states of Florida and Texas have become hot spots for young and wealthy individuals, seeing a significant increase in high-income earners aged between 26 and 35. According to a new survey by SmartAsset, these young, high-earning individuals are particularly leaving states like New York and California for better financial conditions.
Impact of High-Income Migration
High-income earners, although a small percentage of the total population, contribute significantly to local and state tax revenues. For instance, only 2% of tax returns filed by individuals aged 26 to 35 show an income of $200,000 or higher. Nevertheless, they make up 16% of the total income for this age group, creating a substantial tax base that has a significant impact on local businesses and government revenues.
Shift in Demographics
The data showed that New York experienced the most significant net loss of young, high earners, losing 5,062 individuals, followed closely by California, which lost 4,995. In contrast, Florida and Texas had the highest net inflow of high-income earners, gaining 2,175 and 1,909 young high-earning filers respectively. The lack of state-level income taxes in these states is a considerable attraction for these high-earning individuals.
Other Potential Destinations
New Jersey has also emerged as an attractive destination for the young and wealthy, gaining a net of 1,048 high-earners within the ages of 26 and 35. Despite having a graduated income tax, the cost of housing in New Jersey is significantly lower than in Manhattan, making it an enticing option for young, high-income earners.
Washington State also showed a high concentration of young, rich people, with more than 13% of those making at least $200,000 being aged between 26 and 35. However, despite having a relative population higher than any U.S. state for young, rich residents, Washington, D.C. saw a loss of nearly 700 high-earning tax filers aged 26 to 35 in 2021.
The Stickiness Factor
Interestingly, Texas also ranks high in terms of "stickiness," retaining around 82% of its native-born population as of 2021. Economists define sticky states as those offering better economic conditions, varied job opportunities, and less burdensome tax policies, making them more attractive to residents.
At the other end of the spectrum, Wyoming was the least-sticky state, with only 45.2% of natives remaining there, followed by North Dakota (48.6%) and Alaska (48.%), Rhode Island (55.2%) South Dakota (54.2%).
The shift in demographics of high-income earners towards states with more favorable tax policies and economic opportunities indicate an important trend in the U.S. It’s clear that tax policies, cost of living, and job opportunities play a significant role in determining where young, high-income earners choose to live. As this trend continues, we could see a significant impact on the economies of these states, both in terms of tax revenues and housing market dynamics.