Other states eye Mass. millionaires tax — for windfall or wealth exodus

The recent news from Massachusetts revenue officials that they collected about $1.8 billion this year from the so-called "millionaires tax" sparked chatter: Is the windfall great financial news — or a precursor to an exodus of wealthy residents?

"I've had three clients who would've had income that would've meant they'd have the millionaires tax every year, and all three of them have left for Florida," Matthew Erskine, a Worcester-based estate attorney, said in an interview.

Other states considering wealth tax proposals, like Pennsylvania and Vermont, are taking note of Massachusetts' revenue numbers. The voter-approved surtax here brought in nearly a billion dollars more than the state budgeted for. But officials are still watching for whether the wealthy are leaving in droves; economists say there's not yet enough data to know.

The sting of higher taxes cuts across political lines in a blue state with lots of people who built their wealth in finance and tech. Many are not eager to talk about it, however.

Steve Pagliuca, co-owner of the Boston Celtics and a former Bain Capital executive who once ran for U.S. Senate, made headlines last year when he switched his family's official residence to Florida. Public voting records show Pagliuca did this in January of 2023 — the same month the new tax went into effect.

Pagliuca told WBUR he moved for personal reasons in his retirement; he still spends a lot of time in Massachusetts, including for the Celtics' championship run. But he has told the Boston Business Journal he’s no fan of the millionaires tax and warned it will drive business away.

Erskine, the Worcester attorney, said there are other ways to avoid paying the tax, which puts an additional 4% charge on income over $1 million.

"The key to defeating the millionaires tax is to defer the realization of income," he said. People can shield income from home sales in a charitable trust, for instance, or spread out payments from the sale of assets over several years.

Evan Horowitz, executive director of the Center for State Policy Analysis at Tufts University, said there's no doubt some high-earned were moved to "change their behaviors" and exit to avoid paying the tax.

"But the net effect is still that the state has more revenue because of this tax than it would have otherwise," he said.

The Tufts center found the tax is paid by only the top 1% of households — who account for about 20% of the state’s taxable income.

That new revenue means hundreds of millions that’s now earmarked for education and transportation. Last year, that money helped fund free public school meals for every child in the state.

"The Fair Share Amendment has been a clear success, and it's doing exactly what was promised," said Andrew Farnitano, a spokesperson for Raise Up MA, a coalition that advocated for the ballot measure. "The ultra-rich in Massachusetts are paying a little bit more, and we're all benefitting."

Blue states across the country are turning more and more to wealth taxes as a way to raise revenue. Jared Walczak, vice president of State Projects at the nonpartisan Tax Foundation in D.C., said there have been recent increases on income taxes and capital gains in New York and Minnesota.

But Walczak argues these taxes come at a cost — when high-earners move away, the state loses on multiple fronts: their taxes, as well as possible investments in new enterprises that create jobs.

"It's not a question right now of whether this raises more revenue," he said. "But at what economic cost?'' The challenge, he said, is to manage how much net loss of the tax base the state is willing to lose while it looks to generate more revenue.

Horowitz, of Tufts, said the impact of the tax falls somewhere between the advocates' promises and the critics' warnings.

"If you want to raise some money from your wealthiest and highest income residents, you can do that with a millionaires tax," he said. "You almost definitely will not raise as much money as progressive supporters tell you you'll raise, but you can raise real money this way."

"The risks of a total breakdown in the state economy," he said, "are fabricated."