Think Before You Tax: Lessons from Massachusetts

July 31, 2025

In search of new revenue streams, several states across the country have considered increasing taxes on their wealthiest residents. Most recently, New York City mayoral candidate Zohran Mamdani made waves when he proposed a city-level surtax on millionaires—on top of already sky-high state and city tax rates. 

But New York and other states that have considered a surtax—such as New Jersey, Maryland, and Connecticut—have already seen a mass exodus of high-income taxpayers in recent years. The New York Post reports high-tax areas are actually pushing wealthy residents out, and as a result, significant tax revenue. 

Additional surtaxes will only exacerbate this issue. While these policies might deliver short-term bumps in revenue, evidence suggests they will only lead to long-term economic struggles wherever they are tried. 

Massachusetts is a Warning Sign

Nowhere has this played out more clearly than in Massachusetts, where the introduction of a new millionaire surtax in 2022 has coincided with some of the steepest income losses and outmigration numbers in the country.

Based on the latest IRS data available, Massachusetts lost more than 45,000 residents, along with nearly $4 billion in adjusted gross income the year the income surtax passed on the ballot. Analysis by Unleash Prosperity shows that over the past decade, the state has lost a staggering $19.5 billion in domestic income, with a net outmigration of 300,000 taxpayers. That places Massachusetts among the top five states for income loss due to outmigration. 

This is particularly notable among high-income residents, who make up a sizable portion of the state’s tax base.  After years of steady growth, the number of tax returns filed by individuals earning $1 million dollars or more declined sharply in 2022. That drop appears to be part of a larger pattern, as a March 2023 survey by Massachusetts’s trade association for certified public accountants found that 82% of CPAs had higher-income clients who planned to leave the state within the next 12 months.

Recent migration data reinforces these concerning trends among top earners. In 2024, United Van Lines ranked Massachusetts fifth in the nation for outbound moves, while U-Haul placed the state 49th out of 50 for population growth. If these migration patterns persist, the state could lose almost $1 billion in annual revenue by 2030 due to the continued loss of wealthy residents, according to researchers at Boston University.

Surtax Struggles Expand to the Midwest 

New evidence of surtax consequences are unfolding in the Midwest. Minnesota recently passed a 1 percent surtax on investment income over $1 million. This came on top of the state’s already steep 9.85 percent income tax on those earning more than $269,000 annually. Much like Massachusetts, Minnesota is one of the few states that have raised income taxes in recent years despite already having a highly progressive tax system. 

According to the Tax Foundation, Minnesota’s job growth has been sluggish, with employment growth ranking near the bottom nationally. At the same time, the state was already experiencing significant outmigration, particularly among high earners. Minnesota’s continued focus on taxing high-income earners, now intensified by the new millionaire surtax, mirrors the approach taken in Massachusetts and may be contributing to similarly negative trends that could worsen in the years ahead.  

Conclusion

These trends aren’t just coincidences. They reflect the pressures that steep tax burdens place on state taxpayers. Before any other states follow suit, they should consider the unintended consequences already emerging in states that have gone down this path.

Increased taxes on a state’s highest earners may promise short-term revenue, but they come with long-term consequences. This is supported by a 2024 American Economic Journal study that found that, over time, the outmigration of middle-and high-earning residents to no-income-tax states generally offsets the initial revenue gains from the introduction of an income tax. 

The lesson from Massachusetts and other high-tax states is that raising the rate on top earners can backfire if it chases away taxpayers and a significant portion of the state’s taxable income.