Dear Neighbor,
FLIGHT OF THE MILLIONAIRES
This is the third in a series on the causes and effects of the rapid transfer of income, wealth and power upward. The first demonstrated the concentration of wealth. The second was about how that concentration showed up in life expectancy and food.
This one has immediate policy implications. It's about the "flight of the millionaires." Are the uber-wealthy fleeing Massachusetts because of the Fair Share Amendment? That law, passed by 52% of the popular vote in 2022, added a 4% surtax on incomes over $1 million.
Opponents of the Amendment campaigned against it, raising the spectre of a millionaire exodus. After it passed, they raised it again to support Gov. Healey's proposals for $1 billion in tax cuts in 2023.
Now, the same people are saying we need to cut taxes more to stop the millionaires from fleeing. But are they fleeing? Should we try to make taxes fairer, or try to incentivize people with wealth to live here by lowering their taxes?
PREDICTIONS OF DISASTER
In 2022, a coalition including Associated Industries of Massachusetts, Mass. Taxpayers Foundation, National Federation of Independent Businesses, the Greater Boston Chamber of Commerce, and Retailers Association of Mass. opposed the Fair Share Amendment (also known as the Millionaires' Tax). They said that wealthy people and businesses would leave the state if Fair Share passed.
In 2023, when Gov. Healey's proposed tax cuts totalling $1 billion, equal to predictions of revenue from Fair Share. I wrote about that debate here and here, with data on actual migration in and out of Massachusetts.
David Bernstein predicted in Boston magazine that Charlie Baker, Marty Walsh, and Robert Kraft might leave because they would have to pay higher taxes, since they all make multiple millions a year..
Enter our first Trivia Contest on those predictions at the end of the newsletter!
Partly in response to the fears of fleeing millionaires, the legislature passed a $1 billion tax cut package in 2023. It was more progressive than Gov, Healey's plan but still gave significant tax reductions to the wealthy. Graph is from Mass Budget's analysis of who gained from the final tax package.
The chorus of doom continued. Here are just a few examples: In 2024, the Certified Public Accountants were back with their assertion that "thousands of residents with more than $1 million in annual taxable income plan to relocate from the Commonwealth in the next 12 months." They cited comments by their high-income clients.
A Globe opinion column this year, "Everyone's leaving," quoted financial advisers making the same statements.
And Mass. Biotech council, whose members have benefited from over $1 billion in tax incentives and grants, warned that investors are leaving the state because of taxes.
REALITY: MORE MULTI-MILLIONAIRES
However the Institute for Policy Studies reported that the number of millionaires by net worth in Massachusetts grew by 38.6% from 2022 to 2024, after the Amendment and the tax cut package passed.
A Bloomberg News headline, "Massachusetts Loses Billions in Income After Millionaire Tax," was contradicted by the actual article, which said that IRS reports showed fewer higher-income people leaving Massachusetts, and higher-than-expected revenue from Fair Share. Similar information, with a more accurate headline, "New IRS Migration Data Shows No Evidence of Surtax-Driven Outmigration," came from MassBudget.
Fair Share revenue continues to grow far beyond predictions. This fiscal year, it's predicted to bring in $2.7 billion, all dedicated to education and transportation. Indeed, this week the Senate passed our version of a supplemental budget, funded largely by $1.3 billion in Fair Share tax "surplus" revenue. The surplus consists of FY23 and FY24 Fair Share returns above predictions.
Letters to the editor by Jonathan Cohn of Progressive Mass and Harris Gruman made the points that it's young people leaving because of the cost of living, especially the cost of housing, and that Fair Share revenue is paying for important benefits like free school lunch, free community college, and fare free buses in regional transit authorities.
What really affects business location? WBUR reported on the state's efforts to encourage green tech, another industry which benefits from $1 billion in state incentives. In it, an entrepreneur identified things other than taxes as barriers to scaling up: "Housing and labor are expensive. Energy costs are some of the highest in the country. It can take a long time for a new facility to plug into the grid. Navigating state and local incentive programs can be complicated. And the process for obtaining permits is so convoluted, it seems to stump even people with degrees from MIT."
WHAT HAPPENED TO CORPORATE FAIR SHARE?
Last year, as we faced billions of dollars in federal aid cuts, and austerity budgets, Raise Up and other groups proposed to reduce the effect of the cuts by combatting offshore corporate tax avoidance (Corporate Fair Share, or GILTI) and by rejecting the linkage of the Massachusetts tax code to Trump's corporate tax cuts.
Our budget is now an austerity one, with some significant service cuts, even though it doesn't reflect all the potential effects of federal policies. But the Corporate Fair Share bills have not been reported out of committee.
Current law ties some Mass. tax provisions to federal provisions. It makes no sense to allow Trump-inspired, regressive tax cuts to go into effect here. The governor proposed eliminating retroactive tax cuts, modifying one provision, and delaying others. The House and Senate adopted essentially that plan in the supplemental budget. If we simply opted out of the federal changes, we could preserve $278 million in FY 2027. More on this from Raise Up Mass here and from Mass Budget here.
NOW: MORE TAX CUTS?
The narrative of fleeing millionaires and entrepreneurs persists. It's now central to advocacy about "affordability" and "competitiveness." The question is: affordability for whom? Sure, people with homes in multiple states can easily shift where they live 51% of the year, but they're not the 25% of renters spending half their income on rent. Massachusetts' website itself says, "those with lower incomes are more likely to leave."
Jon Keller asked Gov. Healey whether she was worried about out-migration. She said, "I think that we need to do everything that we can to lower taxes, and that's why in my first year I cut taxes. It was the first time we've had a tax cut in over 20 years." She opposes the ballot questions reducing income tax revenue. However, her budget doesn't eliminate, but only postpones state tax cuts triggered by federal changes.
A bigger threat: the Mass. Opportunity Alliance, led by the Mass. High Tech Council, Mass Competitive Partnership, and the Pioneer Institute, has filed ballot question proposals to cut the income tax from 5% to 4%, and to limit state pending growth. This time, some big business groups are not joining in. Raise Up has been asking their members not to support the initiative. Mass Taxpayers Foundation issued an apparently neutral explainer, predicting a $801 million reduction in revenue in FY 2027, and $5.4 billion reduction by 2030.
Regressive tax cuts increase wealth gaps. They result in service cuts, which affect lower income people, and also increase wealth gaps. Progressive taxes that pay for services can reduce wealth gaps and their negative effects.
Stay informed, stay in touch,
FIRST NEWSLETTER TRIVIA CONTEST
1. Which of the three Bernstein predictions came true? I.e. which public official(s) left after the Fair Share Amendment?
2. Name at least two other state-wide elected officials who left before the Fair Share Amendment.
3. What did they do in their new domiciles?
First person to answer both questions correctly wins their choice of any book in my office bookcase!