California's Aging Population Will Cripple Its Economy

The state's loss of economic productivity from out-migration of Millennials won't be helped by moves that incentivize Boomers to stay.

The migration of people, money, and companies out of California has evolved into a clear challenge to the economic future of the Golden State. Terrified by the loss of so much revenue — an estimated $91 billion between 2019-23 — the state, as well as other blue outposts, is looking at ways of forcing people to stay. California lawmakers have proposed further targeting of the ultra-rich, but the upper-middle classes are also at heightened risk; like the billionaires, they are seeking to move away to escape the taxman’s grip.

One method to reduce incentives for leaving the state, proposed in the California press this week, is to turn the screw ever more tightly by heavily taxing residents who sell their overpriced homes. In many cases, this could land middle-class people with capital gains liabilities which, in some cases, could be upwards of a million dollars.

This is an attempt to avoid the ramifications of California’s tax and regulatory policies. Since 2020, there has been a steady flow of people — over five million — from Democratic-supporting counties to those which voted for Trump. This weakens blue-state economies, while also threatening their tax base. As other states impose their own wealth taxes, lawmakers are exploring options to make residents pay to leave — a kind of migratory ransom.

The focus on the upper-middle class reflects changes in migration. For years, California primarily shed working-class residents, but this exodus has spread to the educated and affluent, and across all age cohorts. Many of the richest Californians have fled, taking a combined $1 trillion in wealth with them, but the options for the upper-middle classes are not quite so extensive. They might be homeowners who have enjoyed asset growth from the inflation in real estate, but they still lack the millions to move easily to Miami Beach. This group, largely made up of Boomers, constitutes the most lucrative target for tax raisers.

Taking money from these citizens is an appealing strategy for Left-wingers, but such restraints may carry unanticipated impacts. Moves to keep Boomers in the state contribute to the rapid aging of California. Golden State citizens stay in their homes longer than residents of any other US state, while California’s homeowner age has become ever higher compared to the national average. Perhaps most revealing is that California now ranks last in per capita terms for attracting new residents — a remarkable development for a state long powered by youthful newcomers.

Since 2000, more than four million net domestic migrants, a population roughly equivalent to the Seattle metropolitan area, have moved to other parts of the nation from California. The combined impact of these two phenomena — trapped Boomers and fleeing Millennials — helps explain the state’s collapsing fertility rate. Long above the national average, it is now the nation’s 10th-lowest. California’s birth rate more closely resembles that of New England or Florida than prime competitors such as Texas, Florida and Arizona. Los Angeles and San Francisco rank last and second-to-last in birth rates among the 53 major US metropolitan areas.

Once associated with youth culture, Los Angeles County has seen its population under the age of 25 shrink by nearly three-quarters of a million (-19%) since the turn of the millennium. That’s 750,000 people who would have joined the prime-age workforce over the next 25 years. Last year, Los Angeles experienced the largest net population loss in the country. In contrast, cities in Texas, Utah, Idaho and Arizona have enjoyed double-digit growth among this same cohort over the past two decades. The pay-off for young migrants is clear: those who move gain an average of $600 a month in income once they leave.

Ultimately, trapping the Boomers will only accelerate California’s rapid aging and reduced workforce. Attempts to make it difficult for them to cash out may seem like social justice to the neo-socialists who increasingly dominate the Democratic Party in California. But this approach will leave the state ill-equipped to fend off competition from red states that increasingly attract the young and ambitious — precisely the people who drove California for so long.

This piece first appeared at UnHerd.

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Joel Kotkin is the author of The Coming of Neo-Feudalism: A Warning to the Global Middle Class. He is the Roger Hobbs Presidential Fellow in Urban Futures at Chapman University and and directs the Center for Demographics and Policy there. He is Senior Research Fellow at the Civitas Institute at the University of Texas in Austin. Learn more at joelkotkin.com, follow him on Substack and Twitter @joelkotkin.