BARRON’S: Massachusetts’ Millionaire’s Tax Could Bring About an Exodus of the Super Wealthy

By Kenneth Corbin

This piece originally appeared in Barron’s on May 15, 2025.

Three years ago, ahead of a Massachusetts ballot initiative to impose a surtax on residents’ incomes that exceed $1 million a year, business groups and other opponents warned that the measure would cause an exodus of wealthy citizens from the Bay State.

Voters approved the measure in 2022, and now it appears that at least some of that prediction is coming true, although the impact doesn’t appear to be nearly as broad as the most dire warnings.

The so-called millionaire’s tax went into effect in the 2023 tax year and levied a 4% surcharge on income over $1 million, increasing the state’s effective tax rate on income above that level to 9% from 5%.

Paul Karger is a managing partner at TwinFocus, a registered investment advisory firm in Boston that provides family office services to ultrahigh-net-worth clients. He says many of his wealthiest clients have responded by establishing residence in Florida — which has no income tax — or are actively considering it. On Wednesday, Karger planned to head to Miami to scout property for a client.

Of the 45 family office clients that TwinFocus serves, about half live in Massachusetts. Of those, about half “have recently, are actively planning to, or are strongly considering moving their primary residence out of Massachusetts to a no-income-tax jurisdiction,” Karger says.

Assessing the impact. The real impact of the millionaire’s tax isn’t yet known. The first full tax year affected was 2023, and 2024 taxes are still coming in because of extensions and have yet to be fully tallied. A state estimate projected that the surtax raised an additional $2.2 billion in revenue during the fiscal year that ended June 30, 2024, but that number was a forecast and has been disputed.

Karger’s experience with his clients obviously doesn’t offer a picture of the statewide impact of the surtax, though he attests that he is personally aware of billions of dollars in wealth and income leaving the state due to the tax.

“Yes, it’s anecdotal, but the folks I deal with are the richest in the state, so these are real big numbers,” he says.

Karger worries about ripple effects of their departure, particularly if they have businesses and employees that follow them out of state, potentially creating a “brain drain” that could make Massachusetts less competitive and prosperous. He also points out that the lost revenue isn’t just the 4% surtax, but the 5% baseline tax millionaires would also pay. And much of their spending and charitable donations in the state would also vanish.

Evan Horowitz, executive director of the Center for State Policy Analysis at Tufts University, says his organization is looking ahead to the release of state-level statistics from the IRS later this year. “That’ll be the first chance to get a good read on effects,” he says.

The Institute for Policy Studies and the State Revenue Alliance, which support the surtax, recently released a study that found the number of millionaires in Massachusetts has grown since it took effect. It found a nearly 39% increase in the number of millionaires, measured by total net worth, living in the state. Their total wealth grew by $580 billion over the same period, that study found.

Critics have challenged those findings, arguing that they tell a different story from IRS data. The Massachusetts Opportunity Alliance, a pro-business group that advocates for policies such as lower taxes, argues that the study erred by relying on residents’ total net worth, including nontaxed items such as the value of their homes, rather than their annual income, which is most relevant to the debate on the effect of the millionaire’s tax.

Then there is the business impact. The conservative-leaning Tax Foundation demoted Massachusetts to No. 46 on its 2024 State Business Tax Climate Index, a move the group’s Timothy Vermeer attributed to the passage of the millionaire’s tax.

Wealthy people don’t pack up and move overnight, so any substantial millionaire flight will take time to register, but for now Horowitz says that doesn’t appear to have occurred on a large scale.

“As yet, there’s been no clear indication of wealthy folks fleeing,” he says. “But — and I can’t stress this enough — that was never going to be the main effect.”

Instead, his expectation is that high earners would use trusts or other maneuvers to hide or reduce their taxable incomes.

John Pantekidis, another managing partner at TwinFocus, says those strategies are in use for the firm’s clients who are remaining in Massachusetts. “For those clients who cannot move now for whatever reason, we are also considering certain types of trust vehicles that remove certain types of income from state taxing jurisdictions altogether,” he says.

Will they stay? Every state that has considered such a measure has seen debate on whether it would trigger an exodus of the wealthy. TurboTax last year reported that California, Connecticut, Maine, New Jersey, New York, and Washington, D.C., had adopted a millionaire tax. Business groups and antitax advocates have warned that the new taxes will make the states less attractive to high earners, though some academic literature has found that there is no broad trend of millionaire flight in response to state surtaxes. Michael Mazerov of the Center on Budget and Policy Priorities has argued that “state tax levels have little effect on whether and where people move,” suggesting that factors such as housing prices and climate are more significant drivers of interstate relocation.

The Institute for Policy Studies and the State Revenue Alliance argued that the millionaire class as a whole is more likely to stay in place than less affluent segments of society. “Their family, business, and social networks deeply root them to amenity-rich locales, thus higher income taxes do not compel the overwhelming majority of millionaires to move across state lines,” they write.

Karger doesn’t argue with that assessment, though he draws a distinction between what he calls “the millionaire next door” and the ultrahigh-net-worth individuals who use his firm as a family office. Many of those clients already own properties in Florida. Some have private jets. Changing their state of residence isn’t the same challenge as it might be for millionaires who don’t have that stratospheric level of wealth.

“I think when you get to the upper end, when you’re talking about folks who have $100-plus million…they’re much more mobile,” he says. And, when it comes to tax revenue, “those are the ones that really move the needle.”