11.25.2024

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Bailing on the Bay State: Gains from a new wealth tax precarious as young and mobile higher-earners flee the state, studies find

So much for the Millionaires Tax.

The surcharge on seven-figure incomes was supposed to be a game changer in raising revenue for local schools and the perpetually struggling MBTA.

And activists who led the successful 2022 Millionaires Tax referendum were surely exchanging high fives this spring, with estimates that the four percent tax slapped on incomes over $1 million would bring in an $1.8 billion haul.

But a pair of studies, one just out from the Pioneer Institute, the other released this spring by a Boston University professor, suggest the revenue bump will be relatively fleeting, with much of it gone by decade’s end.

A surge of fairly young, higher-earning professionals, business owners, and skilled tradespeople, among others, have bailed on the Bay State in the wake of the pandemic and the rise of remote work.

And they are taking with them billions in annual income, with increasingly serious implications down the line for both the state’s economy and for state tax coffers.

Massachusetts saw 71,000 residents pack up and leave between 2020 and the end of 2022, according Pioneer’s new study, “Mass Out-Migration: Outflux of Wealth and Residents Continues.”

Eighty percent of those leaving the state made over $100,000 a year, with those making over $200,000 a year accounting for more than half of the exodus. Many were in the 26-to-34-year-old range.

Those leaving Massachusetts took with them nearly $4 billion in annual pay in 2022 alone, representing the loss of about $200 million in tax revenue.

And if present trends continue, the annual outflow of residents and income could hit $19 billion in adjusted gross income – each year - according to a sobering forecast issued last spring by Mark Williams, a BU business professor and former president of the Boston Economic Club.

That, in turn, would amount to nearly $1 billion in lost tax revenue annually.

And it doesn’t take too much imagination to grasp the implications, should that trend extend into the 2030s, by which point all gains from the Millionaires Tax would be wiped out.

When it comes to the why behind the Mass. out-migration, it’s the same old story of high housing and health care costs and relatively high taxes, combined with the rise of remote work, which leads many professionals to consider other options, according to the Pioneer study.

The top destinations? New Hampshire and Florida, both of which don’t have state income taxes.

“You can get more bang for your buck – you are making a Boston wage with the cost of living of a much more affordable state,” Aidan Enright, Pioneer’s economic research associate, told Contrarian Boston. “That is a pretty good bargain to make.”

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