High taxes driving people out of the state
Massachusetts is experiencing some of the highest outbound migration of any state. Only California, New York, and Illinois are losing people — and wealth — at a greater rate, according to a recent Pioneer Institute study.
At first glance, sunny California, the open prairies of Illinois, and historic Massachusetts don’t seem to have many similarities. But they do have one common denominator tying them together: high taxes.
And in the Bay State, it’s getting worse. “In 2021 and 2022, 43 states enacted some form of tax relief,” the study noted. “While Massachusetts contemplated and ultimately raised income taxes during that time, 21 states reduced them.”
A voter-approved 4 percent income surtax on income exceeding $1 million took effect Jan. 1. According to the Pioneer Institute study, this “will likely further quicken the departure of residents and wealth. The top 1 percent of taxpayers paid 23 percent of state income taxes in 2019, and the amendment is likely to drive that number higher.”
Massachusetts also has the most burdensome estate tax in the nation with a threshold of $1 million. Oregon is the only other state with such a low threshold. The majority of states have no estate tax.
And now the State House has voted to increase taxes on the Massachusetts middle class once again.
Chapter 62F requires the state to issue a rebate to taxpayers if annual tax revenues exceed a statutory cap tied to wage and salary growth. It was intended to return excess revenue to the taxpayers who created the surplus.
A House proposal would turn it into an income transfer program akin to welfare by changing the 62F program from being proportional based on an individual’s tax burden to being “equitable” across all residents no matter how much they paid in taxes.
“Tax the rich” is a popular refrain in some political quarters. Unfortunately for Massachusetts, a lot of people being hit with these new taxes are not rich. But they are mobile. And they are fleeing Massachusetts in droves to states that won’t treat them like an ATM.
The Legislature and Governor Maura Healey need to do something about this before it’s too late.
For starters, the Senate needs to block the House proposal to turn the state tax rebate program into an income transfer program.
The Legislature also needs to do something about the estate tax.
Healey proposed raising the threshold to $3 million, while former governor Charlie Baker had previously proposed raising the threshold to $2 million and eliminating the “cliff effect” by taxing only the portion of the estate’s value over this threshold. Healey’s proposal also addresses the cliff effect, albeit in a different manner by creating a nonrefundable credit of up to $182,000. The omnibus tax relief package passed by the House on April 13 would increase the threshold to $2 million. The estate tax is by no means a policy that exclusively targets the wealthy. The explosion of home values in Massachusetts means even people of modest means are being impacted by this onerous tax.
We urge the Senate to follow the governor’s lead and boost the estate tax threshold to $3 million. This would help make the state more competitive while providing a measure of relief to residents suffering from crushing inflation.
Tax reform and reductions would likely help to slow the waterfall of residents leaving. Massachusetts has so much going for it, but people need to be able to afford to live here. After years of successfully fighting off the reputation of “Taxachusetts,” the past few years have seen a return to the bad old days.
This new emphasis on tax increases is making it more difficult for residents to make ends meet. Not only are higher taxes driving people out, they also stifle economic growth, reducing opportunities for those who stay.
Watching our best and brightest leave for Florida, Texas, or New Hampshire is unsustainable. Lawmakers need to shift gears on tax policy immediately if they want to ensure that Massachusetts remains a place where residents can prosper and the economy remains competitive into the future.
After years of successfully fighting off the reputation of ‘Taxachusetts,’ the past few years have seen a return to the bad old days.