Amy Carnevale was elected as the next MassGOP chair replacing Jim Lyons, right, as voting went two rounds. (Chris Christo/Boston Herald)
Supporters who campaigned for the creation of an additional tax directed at the state’s highest earners may soon be experiencing a form of buyers’ remorse now that there’s concrete evidence suggesting the flight of those 1-percenters has negatively impacted the state’s bottom line.
That’s despite the fact that the extra income-tax surcharge has hauled in nearly $2 billion.
Ever since Massachusetts voters narrowly approved the millionaires tax in November 2022, business groups have shared anecdotal evidence about wealthy residents heading for the exits, usually to income-tax-free states such as New Hampshire or Florida. But actual data have been sparse, and tax collections from the surcharge so far have exceeded state projections.
The surcharge adds 4 percentage points on top of the state’s 5% income tax for annual earnings over $1 million, with proceeds directed to transportation and education. Advocates, led by the teachers’ union-backed coalition Raise Up Massachusetts, contend that the economic benefits from spending on those causes more than offset any negative impact.
They may need to rethink that premise.
According to recent Internal Revenue Service data, fleeing Massachusetts taxpayers cost the state roughly $3.9 billion in 2022, placing it fifth in the country for loss of “adjusted gross income” due to domestic migration.
The IRS data, released last week, placed Massachusetts only behind California ($23.8 billion), New York ($14.2 billion), Illinois ($9.8 billion), and New Jersey ($5.3 billion) in 2022 for loss of income.
Of course, millionaires aren’t the only ones seeking a tax-friendlier landing spot. The Wall Street Journal made note that these five states are all controlled by the Democrats, and asserts that the exodus from Blue states has continued even post-pandemic as taxpayers seek lower taxes and a lower cost of living in Republican-controlled states.
The IRS data supports that assertion, since it showed that the five states with the highest gains in income due to migration in 2022 were Florida ($36 billion), Texas ($10.1 billion), South Carolina ($4.8 billion), Tennessee ($4.7 billion), and North Carolina ($4.6 billion).
These numbers come just a few weeks after the results of a poll conducted by the Massachusetts Society of Certified Public Accountants indicated that the relocation of the state’s highest earners has already begun.
In its new 2024 public policy and competitiveness report, the MSCPA said two-thirds of accounting professionals surveyed reported that at least one high-income client left Massachusetts in the last year.
The report indicated that 90% of accounting professionals said high-income clients have considered leaving Massachusetts, and that 64% of respondents indicated the 4% surtax on household income above $1 million per year factored into relocation decisions.
The survey involved 128 CPAs who collectively represent 3,600 clients with annual taxable income of more than $1 million.
“The top three states to which Massachusetts residents are moving or considering moving are New Hampshire, Florida and Texas,” the report said.
“Fifty-three percent of accounting professionals say that their clients are considering moving across the border to New Hampshire, suggesting that the tax burden imposed by Massachusetts plays an important part in the decision to relocate — and refuting the claims that individuals are just relocating due to a desire for sunnier weather and more coastline.”
It’s no coincidence that the actual and potential relocation destinations include Florida and Texas.
Another report released in April by Boston Indicators said that tens of thousands more people were moving out of Massachusetts than moving into the state. It further stated that domestic out-migration has recently outpaced international in-migration, leading to a shrinking population in 2021 and 2022, “for the first time in years.”
It speculated that many people, particularly younger folks like recent college graduates or those looking to start a family, have opted out due to the high cost of housing.
The MassGOP seized on the report at the time, blaming the “burden Democrats impose with their regulations on development and high taxes across the board,” which it said involves taxing “life necessities, innovation and success.”
“That’s why people are leaving,” MassGOP Chair Amy Carnevale said at the time. “Beacon Hill needs to look at cutting these exorbitant taxes and regulations. Then, you will start to see Massachusetts become more affordable and a more attractive place to live.”
And WalletHub, a personal finance website, released a report last year analyzing total tax burdens by state, defined as the proportion of a person’s income that goes toward taxes.
It measured the amount of property tax, income tax and sales tax that people paid.
Three of the five top out-migration states made this top 10 highest tax-burden list: New York, New Jersey and Illinois.
Conversely, Two of the five in-migration states, Tennessee and Florida, made the least tax-burden list.
Losing twice as much income as revenue derived from the millionaires’ surcharge will make even less sense if this outflow of high earners and priced-out younger workers continues.
When or if that rate of diminishing returns prompts an adjustment or repeal of that extra income-tax burden on our wealthiest citizens remains the million-dollar question.
