Massachusetts loses $4.2B in income after millionaire tax as wealthy exodus to lower-tax states raises tax base fears
Massachusetts saw a net outflow of $4.2 billion in adjusted gross income (AGI) in 2023, one of the highest totals in the nation, according to new data from the Internal Revenue Service. The migration of income followed the implementation of a surtax on millionaires, adding fresh fuel to the debate over whether higher taxes on top earners strengthen or weaken state finances.
Millionaire surtax takes effect after voter approval
The outflows came during the first year residents were subject to a 4% surtax on incomes above $1 million. Voters in Massachusetts approved the levy in 2022, with revenue earmarked for education and transportation investments.
Supporters argue the tax reflects voters’ willingness to fund public services through progressive taxation. Critics say it risks undermining long-term economic competitiveness by encouraging high earners to relocate.
Income outflows rise even as departures slow
Despite a decline in the total number of taxpayers leaving the state, the amount of income they took with them increased 8% year-over-year. IRS migration data showed that while fewer residents moved away in 2023, those who did often had higher incomes.
This dynamic complicates efforts to measure the tax’s full impact, as both migration patterns and income levels shape the fiscal outcome.
High-income residents were responsible for roughly 70% of the $4.2 billion in net AGI outflows. That share marked a significant increase from prior years and more than doubled compared with 2019 levels.
The trend suggests that wealthier taxpayers are playing an increasingly central role in shaping the state’s migration-related revenue challenges.
Long-term migration trends predate the surtax
Net outflows of income from Massachusetts have been occurring for years, long before the millionaires tax took effect. In fact, total lost income was higher in 2021 than in 2023.
The lockdown accelerated relocation trends nationwide, with remote work and lifestyle changes prompting many households to reassess where they live and pay taxes.
Florida and New Hampshire remain top destinations
Many departing residents have relocated to lower-tax states such as Florida and neighboring New Hampshire, which does not tax wages or capital gains.
These destinations continue to attract affluent households seeking to reduce tax burdens while maintaining access to business networks and amenities.
Supporters point to strong revenue gains
Backers of the surtax emphasize the more than $6 billion it has generated since implementation. Collections have risen annually and jumped 19% year-over-year in fiscal 2026, reaching $1.3 billion so far.
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.
Critics warn of shrinking tax base
Opponents argue that rising outflows signal a growing structural risk. Trying to make money on a smaller tax base is going to be harder.
Business-backed groups contend that the surtax could discourage investment and entrepreneurship over time.
Three organizations, are supporting ballot initiatives they say would improve economic competitiveness. One proposal would cut the state income tax rate to 4% from 5%, while another would cap how much state revenue can grow annually.
Supporters believe such measures could slow out-migration and encourage businesses and high earners to remain in the state.
State leaders warn of budget shortfalls
Governor Maura Healey and other officials have criticized the proposed tax cuts, warning they could create a multibillion-dollar hole in an already tight budget.
The debate underscores the difficult balance between maintaining fiscal stability and preserving economic competitiveness in a shifting tax landscape.
IRS migration data reveals migration from Blue to Red states
The loss of high income tax payers is not unique to Massachusetts. Newly released 2022–2023 migration figures from the Internal Revenue Service highlight a sweeping reshuffle of residents and income across the U.S., with significant implications for state budgets, housing demand, and long-term economic competitiveness.
Lower-tax states are emerging as clear beneficiaries of the trend. Florida gained a net 113,494 residents, including 50,485 high earners, translating into an eye-catching $20.7 billion influx in income; more than $17 billion of which came from top-earning households alone. Texas followed closely, adding 111,079 net new residents and $5.3 billion in additional income.
At the same time, high-tax coastal states experienced steep outflows. California recorded the nation’s largest population loss, with 205,788 net departures; including 37,777 high earners; who collectively took $13 billion in income with them, $7.6 billion from top earners alone. New York also posted heavy losses, shedding 161,963 residents and $10.6 billion in income. Combined, the two states saw nearly 368,000 people and $23.6 billion in annual income relocate elsewhere in just one year; a shift that underscores growing concerns about shrinking tax bases.
Other Democrat-led states explore similar taxes
Massachusetts is not alone in pursuing higher taxes on wealthy residents. States such as California and Washington have considered or enacted similar policies, partly to offset federal funding reductions enacted under President Donald Trump and to finance ambitious spending plans.
As more states weigh surtaxes on top earners, the Massachusetts experience is likely to remain a closely watched case study in the evolving economics of tax policy.
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14 essential strategies to maximize your Social Security and avoid costly mistakes
Social Security is a vital lifeline for many seniors, providing crucial income support during retirement. With inflation at its highest in four decades, Social Security’s inflation-adjusted benefits offer protection against rising costs.
Rising interest rates have disrupted many retirement portfolios, causing bond fund values to plummet. In this volatile financial landscape, Social Security can stabilize a typical stock-bond retirement portfolio. By implementing smart strategies, retirees can maximize their Social Security benefits and ensure a more secure financial future.
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Deciding when to claim Social Security is often about maximizing your benefit. Financial planners usually advise delaying your claim for as long as possible to secure the highest monthly payment. Your benefit is based on your lifetime earnings, with a full payout available at your full retirement age (FRA), which is currently between 66 and 67 depending on your birth year. Claiming before FRA results in a permanent reduction in your monthly benefit, while waiting beyond FRA leads to a permanent increase. However, the decision isn’t solely about maximizing the monthly check. Personal factors such as health, family circumstances, and financial needs can play a significant role in determining the right time to claim.
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John Dealbreuin came from a third world country to the US with only $1,000 not knowing anyone; guided by an immigrant dream. In 12 years, he achieved his retirement number.
He started Financial Freedom Countdown to help everyone think differently about their financial challenges and live their best lives. John resides in the San Francisco Bay Area enjoying nature trails and weight training.
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