Massachusetts Is Losing Adjusted Gross Income to No-Income Tax State Migration

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In light of a proposed tax increase on million-dollar annual incomes headed for the ballot in Massachusetts, Pioneer set out to determine if the Commonwealth is losing out to the nine states that do not collect any income taxes: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.  Technically wage tax-free, Tennessee just phased out remaining income taxes on interest and dividends this January, while a pending bill would usher in the same change in New Hampshire over the next five years.

The idea of no-income tax states is generally attractive, but potential migrants should understand a state’s whole tax picture before making a move.  For example, Tennessee has the highest combined sales tax rate in the country at 9.53 percent (compared to Massachusetts’ 6.25%), Washington State taxes gasoline at 49.4 cents per gallon – fourth highest in the nation,  and New Hampshire and Alaska are leaders in property tax collection, making up 67.6 and 51.8 percent of their respective state and local tax revenues.

Pioneer’s Massachusetts IRS Data Discovery tool breaks down 2019 tax return migration data to show exactly how many residents had moved to and from Massachusetts over the past year, and how much adjusted gross income (AGI) was gained and lost.  The dataset includes 51 comparisons between 49 states, DC, and the total of all foreign territories and countries.  Below, Figure 1 compares the inflow, outflow, and net change of the amount of taxpayers within the Commonwealth:

Figure 1: Massachusetts Tax Return Count Trends with No-Income Tax States (2019)

Source: Mass IRS Data Discovery (2019)

Florida and New Hampshire rank 50th and 51st in net returns, receiving about 10 taxpayers from Massachusetts for every six that move there.  The nine states account for 24.71% of all inflow returns in Massachusetts, while making up 31.15% of all outflows – a net difference of 6.4%.  Massachusetts’ outflow to all states is 21% more than its inflow, compared to outflow to no-income tax states exceeding inflow by 52.53%.

Perhaps a more revealing statistic is the change in total AGI, measuring the dollar amount gained and lost from resident taxpayers.  The interactive map below allows the reader to hover over no-income tax states to compare inflow, outflow, and net AGIs for Massachusetts migrants:

Figure 2: Massachusetts Tax Return AGI Trends with No-Income Tax States (2019)

Source: Mass IRS Data Discovery (2019)

Again, Massachusetts is losing to Florida and New Hampshire, now switching ranks at 51st and 50th respectively for net AGI gain.  The Commonwealth lost nearly $1.3B in income from state residents who moved to Florida between 2018 and 2019 alone, resulting in a $712M net loss.  Similarly, inflow from New Hampshire brought in $421M during the time that Bay Staters moved $848M of AGI up north.

The nine no-income tax states make up 22.71% of Massachusetts’ total AGI inflow while accounting for 35.13% of all outflow dollars.  As total outflow AGI from Massachusetts to all states exceeded inflow by 23.07%, outflow to no-income tax states alone is 90.38% more than its inflow from those states.

Better illustrating net AGI from Figure 2, the graph below ranks the nine states by the ratio of outflow AGI to inflow AGI.  In total, Massachusetts loses $1.23 of taxpayer income for every $1 in-migrants bring:

Figure 3: Massachusetts Tax Return AGI Inflow-Outflow Trends with No-Income Tax States (2019)

Source: Mass IRS Data Discovery (2019)

Massachusetts experiences a $2.25 outflow for every $1 of inflow from Florida and South Dakota.  In fact, all the no-income tax states are a net dollar-for-dollar loss except Alaska, which accounts for a miniscule $767,000 net AGI gain for Massachusetts.  Texas finds itself below the total ratio of all Massachusetts outflow to inflow by about seven cents.  

Next, Figure 4 ranks the nine states by net AGI per return, comparing inflow and outflow per return as well as the average for all Massachusetts migrants:

Figure 4: Massachusetts Tax Return AGI per Return Trends with No-Income Tax States (2019)

Source: Mass IRS Data Discovery (2019)

Backed by a consistent annual trend, Florida and Nevada have the highest outflow AGI per return at $125K and $130K.  Alaska ranks 50th/51st in both average inflow and outflow, while all other no-income tax states rank in the top 25 for outflow AGI per return.  Average inflow AGIs for Alaska and Washington State are both greater than their respective outflows by a few hundred dollars, but Massachusetts taxpayers moving to Texas made about $9,000 less than those making the opposite move in 2019.

While tax policy may not be a significant factor in interstate travel on average, IRS migration data to no-income tax states still demonstrate a net loss of resident income which could contribute to a loss in total tax revenue.  Massachusetts may benefit from policies that retain retirees and higher-income taxpayers who are likely more cognizant of the impacts of taxation.  But we must also recognize the importance of solving significant migration motivators like jobs, quality of life, and cost of living.

Jack Landsiedel is a Roger Perry Government Transparency Intern at the Pioneer Institute for Summer 2021.  He is a rising junior at the University of Maryland, College Park with a major in Government & Politics and minors in Public Leadership and Sustainability Studies.