Wealthy Americans are fleeing Massachusetts after the millionaire’s tax, shelling out $4.2B in income. Reduce your taxes now

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Massachusetts millionaires take in $4.2 billion in state revenue by 2023, according to new data from the Internal Revenue Service (1).

As Bloomberg reported, that’s an 8% increase from a year ago, and it comes just as the state began imposing a new 4% surtax on income over $1 million.

This levy, approved by voters in 2022, was designed to raise money for schools and transportation (2). To date, it has delivered, generating over six billion dollars in revenue.

But the outflow of income raises a new question: Do higher taxes on the wealthy boost the nation’s income or do they quietly reduce the tax base over time?

Massachusetts’ “millionaire tax” was a financial success on paper. However, at the same time, billions of dollars in revenue are flowing out.

In 2023 alone, residents who moved from Massachusetts took home $4.2 billion in adjusted income. Adjusted gross income (AGI) is a measure of total income after certain deductions. The IRS uses that data to track how income flows between states.

Although the number of billion is high, it is not new. Government outflows have been happening for years, and actually peaked in 2021.

The number of people traveling has also decreased. The total number of outgoing tax returns fell by around 36% year-on-year, suggesting that fewer households are moving overall.

High-income families now account for a larger share of the total departure from the government. By 2023, top earners account for 70% of total income. That’s double their share a few years earlier.

Read More: I’m in my late 50s and have no retirement savings. Is it too late?

The issue is not the volume of people leaving Massachusetts, but the accumulation of wealth among those who leave.

Even a relatively small number of high earners can move large sums of money.

To put it plainly, if 1,000 middle-income earners making $80,000 a year move, that represents about $80 million in income leaving the country. But if only 100 people earning $5 million a year leave, that number rises to $500 million.

In other words, the tax base is more sensitive to who moves, not how many people move.

Many high-income households leaving Massachusetts are moving to low-tax states like Florida and New Hampshire, according to Bloomberg.

Both states offer significant tax benefits. Florida has no state income tax, while New Hampshire does not charge an income or capital gains tax (3, 4).

For high earners, that difference can translate into big savings, especially over time.

That’s why decisions to move to higher income levels are often driven by financial considerations rather than health alone, according to the Tax Foundation (5).

Massachusetts is not alone in targeting high earners.

Several Democrat-led states are exploring similar policies as they look for ways to support public spending and reduce federal support.

California, for example, has discussed a potential wealth tax, while Washington has recently enacted its own tax on high earners (6).

But the Massachusetts experience highlights a trade-off between that strategy: How to raise more revenue without encouraging the very taxpayers who generate it to leave.

Although most Americans do not decide where to live based on the million dollar tax threshold, decisions about the timing of income, investment strategy and tax exposure can still have a significant impact on long-term wealth.

That said, tax strategies are incredibly personal, and there is no one-size-fits-all solution for every household.

That’s why some Americans are turning to platforms like Advisor.com, which connect users with licensed financial professionals who can help create a plan that fits their goals.

Advisor makes it easy to talk to licensed financial professionals in your area who can provide you with personalized guidance, including ways to reduce your tax burden.

In addition to tax planning, a professional advisor can also help you determine how many years you have left to invest before retirement, and assess your comfort level with market volatility – two key factors in building the right asset mix for your portfolio.

Even better, you can schedule a free, no-obligation consultation to discuss your financial plans and see if Advisor.com’s choices are right for you.

If you look at how the wealthiest investors handle their taxes, it’s usually not just a once-a-year filing. They treat the tax season as part of the overall strategy.

They don’t just report income. They look for ways to soften large gains, put some investments in tax-advantaged accounts and plan withdrawals carefully.

At higher income levels, one missed coin or poorly timed move is insignificant. It can cost thousands of dollars.

High-income families can work with platforms like Range to reduce their tax burden.

Broadband is a simple, cost-effective way to manage your entire financial life. They provide tax recommendations based on your past returns, and can analyze your investment portfolios for tax loss harvesting opportunities, too.

Apart from taxes, Range also offers investment advisory services. While traditional advisors can charge fees ranging from 0.5% to 2% of your total assets under management (AUM), or between $1,000 to $3,000+ for comprehensive plans, Range offers lower fees with 0% AUM fees. That’s a fraction of what you’d pay for a regular CFP.

You can even book a free demo with the Range team after answering a few quick questions to see if their expertise matches your portfolio.

For households with complex finances or high levels of investable assets, that consideration may be even more important.

At that level, financial planning often extends beyond basic investment decisions to include strategies for taxes, retirement accounts and long-term wealth preservation.

Another way some Americans are exploring is to use tax-advantaged accounts wisely.

For experienced investors with portfolios of $50K or more, that may include diversification through a self-directed retirement account.

A self-directed retirement account is a tax-advantaged individual retirement account (IRA) that allows investors to allocate funds across a wider range of assets than traditional IRAs offered by banks or brokerage firms.

With IRA Financial, you can work directly with experienced retirement professionals or manage their accounts through an online platform and mobile app. The company also provides internal tax support to help ensure that investments remain in compliance with IRS regulations.

With over $5 billion in retirement assets in custody, guaranteed IRA probate protection, 25,000+ clients nationwide and a 97% client retention rate, IRA Financial can help you grow your retirement fund with other assets.

Simply answer a few questions – including the types of assets you’d like to invest in and how much you’d like to start with – to qualify for an account in just 90 seconds.

Massachusetts’ experience highlights a growing problem across the country.

On the other hand, taxes on high earners can generate billions of dollars to fund important public goods. On the other hand, even small shifts in where high earners choose to live, or how they structure their finances, can have a big impact on the state’s tax base.

Wealth, in many ways, behaves differently from income or people. It’s portable, flexible.

As many states test similar policies, that balancing act is likely to become more important.

For individuals, moving is less about where to move and more about planning. Although tax policy can change from year to year, the long-term outcome often depends on the decisions you make about your investments and overall financial strategy.

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We rely only on vetted sources and reliable third-party reporting. For details, see our editorial ethics and guidelines.

Bloomberg (1); Secretary of the Commonwealth of Massachusetts (2); State of Florida.com (3); New Hampshire Department of Business and Economics (4); Tax Base (5); GeekWire (6)

This article provides information only and should not be construed as advice. Offered without warranty of any kind.