Debunking Tax Migration Myths

The truth: Tax them and they will leave

BOSTON — Provisions of Gov. Healey’s $876 million tax package targeted to higher-income earners — including revisions to the estate tax and a reduction in the tax rate for short-term capital gains — are important for encouraging taxpayers subject to them to remain in Massachusetts, according to an analysis from Eileen McAnneny, Senior Fellow in Economic Opportunity at Pioneer Institute.

According to McAnneny’s analysis:

• The top 1 percent of taxpayers in Massachusetts paid more than 23 percent of all income taxes in 2019, accounting for approximately 14 percent of the state’s overall annual tax collections.
• When estate and sales taxes are included, that percentage is even higher, dispelling the notion that high-income earners are not paying their fair share.
• Last November’s passage of an income surtax means reliance on this small group of taxpayers is even more concentrated.

Some lawmakers giving testimony on H.42, An Act Creating Tax Relief for Affordability, Competitiveness and Equity, suggested that taxpayers do not leave a state because of tax increases. But recent evidence suggests otherwise. And the loss of even a small percentage of high-income earners could result in a significant drop in annual tax collections for Massachusetts.

Lawmakers need look no further than the recent article on the front page of The Boston Globe indicating that Massachusetts has lost 110,000 people since April 2020.

McAnneny’s analysis also points to flaws in a well-known 2016 study from Stanford, Millionaire Migration and the Taxation of the Elite: Evidence from Administrative Data, which has often been cited by those opposed to offering tax relief to high-income earners.

Pioneer Institute previously debunked that Stanford study, titled Eight Reasons to Question Professor Cristobal Young’s Conclusions About Millionaires, and has continued to offer evidence for the harmful effects of the state’s tax policies.

McAnneny’s brief points out:

• The Stanford study doesn’t account for increased worker mobility. Published in 2016, before the COVID-19 pandemic, the study doesn’t reflect current economic realities in Massachusetts. In the Bay State, with a predominance of white-collar industries, the mobility trend has been particularly pronounced. In fact, 24 percent of Massachusetts employees work remotely, according to recent U.S. Census Bureau Survey, a much larger percentage than the national average of 18 percent.
• Massachusetts has a large and growing population over 65. Retirees on fixed income are more sensitive to cost variations among the states. The 2016 study acknowledged that “Tax-induced migration is higher among people of retirement age, people living off investments rather than wages…” Thus, it is reasonable to assume that Massachusetts will see an uptick in the number of older residents subject to the income surtax and the estate tax who leave the Commonwealth for lower-tax environments.

McAnneny’s analysis shows why lawmakers should support Gov. Healey’s proposals to reduce the short-term capital gains tax rate and raise the income level at which the estate tax applies. Migration from Massachusetts, whether primarily or partly due to tax burdens, poses a challenge that policymakers cannot ignore. Easing the burden for those who shoulder it may by itself be insufficient to stem the tide, but it is a necessary part of any strategy to make Massachusetts more competitive.