Massachusetts loses billions in income after millionaire tax

Residents exiting Massachusetts took a net of $4.2 billion in adjusted gross income with them in 2023, one of the largest totals in the country, after a tax on millionaires took effect. 

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The amount was an 8% year-over-year increase, according to Internal Revenue Service data, even as the total number of taxpayers leaving the state slowed. 

This was the first year that residents were subject to a 4% surtax on incomes over $1 million after voters approved the levy in 2022 to fund schools and transportation. 

Several Democrat-led states have since approved or are considering similar taxes on top earners, partly as a way to make up for federal funding cuts enacted under President Donald Trump and also to pay for more ambitious agendas. 

Supporters of the Massachusetts measure hail the more than $6 billion in revenue it’s brought to state coffers. Critics warn that it’s driving away entrepreneurs, even if Massachusetts lacks the high-profile departures seen in California, which is weighing a wealth tax, or Washington, which enacted a millionaire tax earlier this month.

The new IRS data offers evidence for both supporters and opponents of the surtax. 

Despite the tax’s implementation, the number of residents moving out of Massachusetts who reported income of $200,000 or more — the top bracket tracked in the IRS data — fell year-over-year. Net outflows from Massachusetts long predate the millionaires tax, especially to Florida and New Hampshire, its northern neighbor, which has no tax on wages or capital gains. Total lost income was also higher in 2021 than 2023.

The state’s millionaires-tax collections have increased every year since 2023 and so far in fiscal 2026 have jumped 19% year-over-year to $1.3 billion. 

That haul “shows most conclusively that the people with very high incomes continue contributing revenue at rising rates based on their residence in Massachusetts,” progressive organization Massachusetts Budget and Policy Center said in a statement.

The level of income leaving the state remained significantly higher than it was pre-pandemic, even as a Covid-induced explosion in moving activity abated. The net number of tax returns from outgoing residents dropped by 36% from 2022 to 2023.

The wealthy now make up a larger share of defections from Massachusetts. The top earners were responsible for 70% of the $4.2 billion in net outflows in 2023, a jump from the previous year and more than double the level from 2019. 

“We are trying to make money on a smaller tax base. It’s going to be harder,” said Jim Stergios, executive director of Pioneer Institute, a Boston-based think tank that opposes the tax.

Three business-backed organizations including Pioneer are backing ballot questions this year, which they argue will recapture economic competitiveness lost because of the millionaires tax. One would lower the state income tax to 4% from 5%, while another would cap how much state revenue can increase in a given year. 

Massachusetts Governor Maura Healey and other elected officials have blasted the proposed income tax cut, saying it will create a multibillion-dollar hole in an already-tight state budget.