College students who’ve arrived in Massachusetts this fall can study a real-world lesson in unintended consequences: the Commonwealth’s surtax on million-dollar earners is hurting our state’s economic competitiveness.
According to new IRS data, Massachusetts lost nearly 13,000 high-earners – those reporting at least $1 million in adjusted gross income – between 2021 and 2023. That makes it the state with the largest decline in high-earners relative to the size of its taxpayer base.
This disproportionate loss is an important warning about the Commonwealth’s ability to retain million-dollar earners and the ensuing income and investment that our economy and state budget depend on.
The data can’t tell us why we’re losing million-dollar earners – factors like moving out of state or earning less overall could be contributors. But the timing is striking: as the new 4% surtax on taxable income above $1 million took effect, the Commonwealth’s number of million-dollar earners fell. It was a stark reversal from 2017 to 2021, when Massachusetts saw steady growth in the number of in-state taxpayers in the same demographic.
The numbers are consistent with previous data – and public polls – showing people leaving Massachusetts and taking their income with them – a net $4.2 billion in adjusted gross income in 2023.
In a Mass Opportunity Alliance (MOA) survey of people who moved out of Massachusetts, the state’s high tax burden was the top reason pushing them to leave – ranking even higher than the lousy New England winters. More than half (55%) were Florida bound, with another quarter headed north to New Hampshire.
The IRS’ latest findings offer valuable insights into not only who these people are and what tax bracket they fall into, but also broader public policy implications that impact all taxpayers.
First, the numbers raise questions about the Commonwealth’s ability to retain its success stories.
If someone earning more than $1 million has a choice between paying Massachusetts’ 9% top marginal state income-tax rate or moving to Florida or New Hampshire, both of which have no broad-based individual income tax, the choice is clear, especially in this era of remote work.
Second, relying on an increasingly smaller pool of high earners to supplement the state’s budget is not a winning strategy in the long-term. The data suggests this revenue stream is unreliable and likely to shrink in the future, if more millionaires defect from the Commonwealth.
Finally, the concept not only sets a negative precedent, but opens the door to other damaging ideas. For example, groups that championed the last tax hike — including the Massachusetts Teachers Association — are already preparing to double down with a state wealth tax.
Mark Cuban, the legendary investor of “Shark Tank” fame, described a wealth tax as, “the biggest (insult) in the history of entrepreneurship. Ever.” Job creators certainly seem to agree. Consider what’s happening in California and Washington – the two other states with top millionaire losses in the same time period.
A Golden State ballot measure that would levy a one-time 5% tax on people with a net worth of $1 billion or more has entrepreneurs headed for the exits. They’re taking their ideas, businesses and jobs with them. Like Massachusetts, California is a high-tech, innovation hub. When entrepreneurs and investors have more flexibility about where to live, work and build, policymakers should be careful about giving them a reason to leave.
In Washington State, a newly imposed 9.9% “millionaires’ tax” on income could expedite the existing out-flow of high-earners and job creators. Starbucks has already launched a massive corporate expansion in tax-friendly Tennessee. New York City may soon face a similar fate, with Mayor Zohran Mamdani explicitly stating that “billionaires should not exist,” and vowing to “tax the rich” with punitive new policies.
As freshmen across Massachusetts settle in to Econ 101 this fall, perhaps wealth-tax advocates should grab a seat. Lesson one: when you make it more expensive to live, invest, and do business, don’t be surprised when people and their money head for the exits.
Colin Reed is a senior advisor to the Mass Opportunity Alliance
