tax policy

Massachusetts policymakers should pay close attention to the latest evidence of the Commonwealth’s declining competitiveness. Last week, the Tax Foundation published its 2024 State Business Tax Climate Index, which showed Massachusetts’ ranking falling more than any other state, from 34th to 46th.

This post explores the difference among tax policies in Massachusetts, New Hampshire, and Florida in order to explain the increasing amount of Massachusetts residents who are migrating from the state. Tax-friendly policies are very alluring to Massachusetts residents, seeing as the state is actually increasing the personal income tax rate rather than try to lower taxes, as both New Hampshire and Florida have done.

IRS data reveals that net out-migration from Massachusetts is accelerating rapidly and is greatest among affluent residents who pay the most in state taxes, according to a Pioneer Institute analysis. Between 2019 and 2021, Massachusetts rose from ninth to fourth among all states in net out-migration of wealth, behind only California, New York, and Illinois.

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 a new analysis from Pioneer Institute.

As Massachusetts voters weigh an amendment to the state constitution to enact a surtax on million-dollar earners, they should be cognizant of how the policies of other states could interact with the tax hike to encourage an exodus of jobs and capital, especially in proximate jurisdictions. New Hampshire is a neighboring state that has already benefited from out-migration from Massachusetts to the tune of over $426 million in taxable income in 2019 alone. A new budget amendment there, passed in July 2021, will eliminate the interest and dividends tax by 2027, contributing to a divergence in tax policy that might attract an increasingly mobile workforce and entrepreneurial base.

Drawing on migration patterns between Massachusetts and states like Rhode Island and Tennessee, Pioneer Institute is releasing a study showing a direct correlation between personal income tax rates and household domestic migration patterns between 2004 and 2019. The study suggests that instituting a graduated income tax will shrink the tax base and deter talented workers and innovative employers from coming to and staying in the Bay State.