The scene on the 36th floor of San Francisco's Transamerica Pyramid was reminiscent of the pre-pandemic boom years: well-to-do attendees hobnobbing over wine and appetizers, being pitched access to an exclusive enclave with a private bar, restaurant and gym in the heart of the city.
It was the inaugural reception for Core, a members-only club opening next year for Californians ready to shell out $15,000 to $100,000 in initiation fees, along with thousands more in annual dues. For the New York-based company, the expansion marks a big bet that wealthy clientele will flock to the city's ailing downtown.
"If people were telling us 'I'm planning my exit,' we wouldn't come here," said Francesca Giessmann, Core's membership coordinator. She has reason for optimism: Even as California contends with population loss, exorbitant housing costs and corporate departures, it remains one of the most popular places for global wealth. In fact, it has become home to even more ultra-rich residents in recent years, helping bolster the world's fifth-biggest economy while inequality has deepened.
It's an issue taking even greater resonance this year as stocks rebound and the artificial-intelligence industry flourishes in the state, minting new fortunes. Meanwhile, growing inequities between workers and executives have made California a center of the resurgent U.S. labor movement, with strikes from hotel staff near Disneyland to dockworkers, nurses, Hollywood writers and actors all demanding better pay.
This year through July, California's billionaires added $270 billion in wealth, according to the Bloomberg Billionaires Index. The index tracks more billionaires in the state — 113 — than in any country except China.
But the ranks of mere millionaires have grown as well, far outpacing any loss of high-net-worth taxpayers during the pandemic. From the end of 2019 through 2021, California added more than 116,000 millionaire taxpayers, according to the most recent personal income tax data provided by the state’s Department of Finance. That was a record for a two-year period and more than in the previous decade combined. The number of residents making more than $50 million surged 158% to 3,182.
And that likely underestimates the riches. While the tax data reflects salaries along with income from stock and real estate sales, the ultra-wealthy often avoid income taxes by borrowing against their wealth instead of selling assets that would incur a tax burden.
In total, more than 288,000 Californians, or 0.7% of residents, reported over $1 million in income in 2021. By comparison, New York saw the number of millionaire taxpayers in that period increase to about 80,000 people, or 0.4% of its population.
“We’ve never seen an absolute growth in the number of millionaires like this data,” said Cristobal Young, a Cornell University professor who has studied wealth migration. “Ultimately, California is a great place to make money.”
As California’s richest residents reaped new fortunes, wages stagnated at the bottom end of the income spectrum. The state lost population for the first time in its history for the past three years — amounting to more than 500,000 people — fueled mostly by lower- and middle-income residents relocating to cheaper locales such as Texas and Arizona. In July, the Department of Finance sharply lowered its population projection to show the state will have about the same number of residents in 2060 as it does now.
Only a fifth of residents can afford to buy a median-priced house, while homelessness is at crisis levels. California ranks fourth among states in a measure of inequality known as the Gini coefficient, rising two spots from 2019 to 2021.
“Wages have been increasing, but in many professions, those increases were fully offset by inflation,” said Tess Thorman, an inequality expert at the Public Policy Institute of California. “This is a really challenging time for people in California to live on a low income.”
California’s sunny climate, first-class universities and access to Silicon Valley and Hollywood has long made it a haven for wealthy people, who play an outsized role in the state’s economic fortunes. Its progressive tax system relies on the top 1% of earners for roughly 50% of personal income tax revenue. That’s reflected in its budget: After a record $97.5 billion surplus in 2022, last year’s swoon in stock and real estate markets led to a $32 billion budget deficit for the current fiscal year.
The state has the highest-in-the-nation upper tax bracket at 13.3%, and the departure of billionaires including Larry Ellison and Elon Musk has led some pro-business Democrats to rally against new taxes on the wealthy. Democratic Gov. Gavin Newsom last year opposed a ballot measure that would have added a 1.75% levy to income above $2 million. It ultimately failed.
“I’ve opposed new increases in the top 1% tax,” Newsom said during an interview with Sean Hannity in June as the Fox News host sought to tie the state’s population loss to California’s high tax rate. “I’ve never been a profligate Democrat.”
Companies including Musk’s Tesla Inc., Ellison’s Oracle Corp., Charles Schwab Corp. and Hewlett Packard Enterprise Co. have relocated to more tax-friendly Texas. But such moves aren’t always realistic, said Dominic Ng, CEO of East West Bancorp Inc., California’s largest state-chartered lender.
From a pure tax perspective, it would make sense for Ng to move his bank to Dallas or Las Vegas. But that would force him to leave behind his lifestyle, built around the Chinese-American community in Southern California and the talent pool that his bank draws from.
“There’s no question I’m paying a ridiculous amount of tax for many, many years now. But hey, that’s my problem; if I don’t like it, I can quit,” said Ng, who received a $9 million compensation package in 2022. “In reality, we basically have no leverage.”
The gravitational pull of everything from the movie industry to the AI boom gripping Silicon Valley makes it extraordinarily hard for California’s prosperous taxpayers to leave. Research from Young, the Cornell professor, found that the national rate of migration for millionaires was only 2.4%, while it was 12% in young adults.
“People starting their careers in tech are mobile in the beginning — by the time they’re making a million a year they’re late career insiders, and by then they’ve been living in their state for 20 years,” he said.
They’re also simply in a better position than a middle-class family to keep up with the cost of living in California, where the median house price of around $800,000 is roughly twice the national level. And remote work has given a whole new demographic of higher-income residents the ability to relocate across state lines while keeping their job.
But for those who can afford it, California remains a draw. Dave Nixon, a longtime member of the pro-tax Patriotic Millionaires group, moved back to California in July 2022 as Florida politics swung to the right. He traded a St. Pete Beach home and zero income taxes for a midcentury modern house in Pasadena and a smaller paycheck but says it’s worth it to live in a state that he views as having a strong commitment to equality, health care and immigration.
“Now we know what good government costs,” said Nixon, who runs an applied-genomics company.
There also are signs that wealthy Californians are returning from a pandemic-era hiatus, particularly as the AI frenzy takes hold. In an interview last week at City Hall, San Francisco Mayor London Breed said she knows “several” people who recently moved back from Austin.
At the Core club’s reception in June, attendees traded stories of friends and clients who had moved to places like Texas and were suffering under this summer’s oppressive heat. As San Francisco’s coastal fog blanketed buildings below the famed pyramid, the weather was just another confirmation that they had made the right decision to keep their lives, and wealth, in California.
“I’d rather be a little chilly,” said Andrea Fitanides, a San Francisco attorney who said some of her friends have come to regret leaving the area. There’s a dawning realization in her social circle, she said, that “hold the phone, California has always been incredibly desirable.”