This past tax year marked the first year in which Massachusetts’s new “millionaire tax” — a four percent surtax on income over $1 million earned in the state — hit Massachusetts taxpayers. With the new revenue rolling in, the surtax’s proponents have begun to declare victory over critics who warned that the tax would only accelerate the state’s persistent trend of overtaxed residents fleeing for greener pastures. In doing so, they are counting their chickens before they’re taxed.
According to state Department of Revenue officials, the tax has raked in an additional $1.8 billion from the state’s wealthiest residents in its first year.
But the excitement over this new revenue completely misunderstands the impact taxes have on taxpayers. Every taxpayer is different, and there are many different factors that go into each taxpayer’s residency decision. How an individual taxpayer weighs those other factors relative to tax rates determines how much tax they are willing to put up with before they decide they’d rather pack up and leave.
In other words, it is a mistake to think of tax migration in absolute terms. There is not a magic number at which all taxpayers of a certain income level will flee the state (and below which they will all grumble and pay). Rather, each tax increase pushes more taxpayers in the same bracket to leave each year. What’s more, the same taxpayer might put up with the tax increase for 2023 but decide to leave in 2024 after their children graduate, a job opportunity opens up in another state, or any number of other reasons.
That is a long way of saying that the impact of a tax increase on out-migration will not necessarily become apparent in the first year. The real damage is done in the long term as more residents are pushed past their breaking point each year and leave the state.
Massachusetts had good reason to be concerned about migration trends even before implementing this latest tax. According to the latest IRS data covering residency changes between 2020 and 2021, Massachusetts lost the fourth-most households on net of any state in the country. That worked out to a net loss of $4.28 billion in taxable income from Massachusetts’ economy in that year alone.
The trend had been accelerating for quite some time. Massachusetts lost a net $2.55 billion to out-migration the year before, and $1.45 billion the year before that. Things are set to get even worse, though. A recent study by Boston University estimates that by 2030, Massachusetts will be on track to lose a net of more than 96,000 households and $19.2 billion per year — quadrupling the rate of out-migration within a decade.
Suddenly that extra $1.8 billion doesn’t look so impressive.
That same study found that while Massachusetts almost always scored better than the states its residents tend to flee to on healthcare quality, economic health, and quality of education, the migration target states always beat out Massachusetts on income tax rates, housing cost, and healthcare cost. As Massachusetts continues to double down on failed tax-and-spend policies, other states’ competitive advantages will only increase.
Other states considering similar policies should recognize just how short-sighted Massachusetts policymakers are being. Trying to tax your way out of the demographic trends wrought by a commitment to high taxes is only likely to exacerbate the death spiral.
Andrew Wilford is the Director of the Interstate Commerce Initiative with the National Taxpayers Union Foundation, a nonprofit dedicated to tax policy research and education at all levels of government.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller.
