Massachusetts ‘millionaires tax’ cost the state $4 billion in departing income

The vast majority of that loss came from high-income earners leaving the state.

Massachusetts is the most recent state to impose a “millionaire’s tax.”

In 2022 lawmakers and voters there approved a constitutional amendment that overturned the state’s flat tax structure.

New IRS data shows that from 2022-2023, Massachusetts lost more than 30,000 residents and over $4 billion in adjusted gross income.

Most of the exodus came from high-income earners. Those making more than $100,000 a year and their dependents represented 62% of the people who left Massachusetts that year.

However, the effects of high-income outmigration are most felt in the share of income the state loses. More than 70% of the lost income in Massachusetts was from those making more than $200,000 a year, even though they made up only 28% of those who left the state.

That 70% of net income loss for a state from those making over $200,000 is the highest amount recorded for that income group since the IRS began tracking the data in 2011-2012 tax returns.

Massachusetts is only the second state ever to switch from a flat to a progressive income tax structure. Washington state recently approved a 9.9% tax on income above $1 million that will begin in 2028.

Meanwhile, 11 states have switched from progressive structures to flat. Colorado was the first to make the switch, in 1987, followed by Utah in 2007,  North Carolina in 2014 and Kentucky in 2019.

In 2021 the flat tax revolution began, with Arizona, Iowa, Mississippi, Georgia, Idaho, Louisiana, Kansas and Ohio all approving a switch to a flat income tax.

Illinois state lawmakers are looking to upset that trend this year with their own “millionaires tax.” A proposal that would add a 3% additional income tax on income above $1 million passed out of committee April 21, meaning it could get a full House vote at any time any time prior to the May 3 deadline for constitutional amendments.

The proposal comes as Illinois is already pushing out tens of thousands of high-income residents, who are taking billions of dollars with them.

It’s not just individuals who might pay more. More than 22,000 small businesses — s-corporations and partnerships — that “pass through” their business income to their owners, who pay taxes as individuals, would suffer the tax hike, too.

Small businesses are Illinois’ primary job creator, both historically and in the recovery from the COVID-19 downturn. Illinois already pushes out pushing more businesses than any other state. This tax hike could make the situation even worse.

Contact your state representative to stop the small business tax hike here.