A millionaire levy in Massachusetts that New York Metropolis mayoral frontrunner Zohran Mamdani holds up as a mannequin for taxing the wealthy has generated $3 billion extra in income than anticipated with out forcing important high-profile departures from the state.
Within the two years because the state began charging a 4% surtax on incomes over $1 million, the hassle has created a $5.7 billion windfall, with the excess getting used to fund bridge repairs, bolster literacy packages and tackle the transportation system’s finances deficit.
Whereas different states have progressive tax brackets, the Massachusetts legislation stands out structurally in its concentrating on of incomes that exceed seven figures. That has infuriated enterprise leaders who complain it makes the state much less aggressive and drives away the rich. A number of are even backing poll proposals to decrease the state earnings levy and restrict how a lot tax income could be collected in any given 12 months as a solution to diffuse the millionaire’s charge.
Some high-profile names have moved away, together with Robert Reynolds, the previous chief government officer of Putnam Investments. However different anecdotes of bold-faced names or corporations ditching Massachusetts are tougher to come back by, in distinction to tales of exits from New York, Chicago and San Francisco. Which will change as extra Inner Income Service information is launched within the coming months, probably bolstering the case for the tax or offering proof of the way it can undermine a state’s attraction to the rich.
Boston Mayor Michelle Wu — whom Mamdani has known as a task mannequin — lately chastised executives for complaining concerning the tax. She contends that the area’s expertise pool and livability are extra vital to its financial competitiveness.
Many high-income taxpayers are staying within the Boston space regardless of the tax hike.
“On the finish of the day, I occur to imagine it’s an outstanding place to stay,” stated Sam Slater, an actual property developer who lives within the Boston suburb of Weston and pays the millionaire’s tax.
Slater, 41, might stay wherever: His actual property agency has holdings nationwide. He travels ceaselessly for his aspect job producing movies starring large names like Mark Wahlberg. His holdings together with a bit of the Nationwide Hockey League’s Seattle Kraken. He even spent a part of his childhood in West Palm Seaside, Florida, a favourite refuge for rich executives seeking to flee excessive taxes and winters.
However he’s staying put. His household has roots within the area, they usually additionally like Boston’s tradition, sports activities groups and seasons, Slater stated.
Josh Isner, president of taser producer Axon Enterprise Inc., stated the millionaire’s tax makes it tougher to recruit expertise — significantly well-paid artificial intelligence specialists — to the Northeast hub the corporate opened in Boston final 12 months. However the workplace relies within the metropolis as a result of “Boston breeds super-talented folks,” he stated earlier this 12 months.
He lives in Massachusetts, fairly than close to the corporate’s headquarters in Scottsdale, Arizona, the place earnings taxes are considerably decrease. That’s largely as a result of Massachusetts colleges are so famend, he stated.
Massachusetts voters approved the surtax in 2022, with the levy making use of to earnings that exceeds the $1 million threshold. Mamdani, who has maintained a big lead in polls forward of New York’s Nov. 4 mayoral election, cited the Massachusetts coverage as a hit story when he floated his personal millionaire’s tax proposal.
New York might show completely different than Massachusetts. The Empire State already ranks dead last within the Tax Basis’s competitiveness index with charges which might be among the many highest within the nation. And whereas Mamdani has used billionaires as a foil in his marketing campaign — he needs to lift levies on people and companies to pay for his progressive agenda — Governor Kathy Hochul has dominated out approving will increase.
In Massachusetts, with a buoyant inventory market serving to to swell rich residents’ taxable wealth, the millionaire’s tax generated an estimated $3 billion within the fiscal 12 months that ended June 30, greater than double what state lawmakers had budgeted, in line with the Massachusetts Division of Income. Collections a 12 months earlier equally exceeded expectations. The surtax has generated $5.7 billion in complete.
The additional money has helped Governor Maura Healey ease the Massachusetts Bay Transportation Authority’s finances hole at a time when different states are slashing practice and bus service. Healey’s now searching for to use $200 million of the cash to deal with President Donald Trump’s cuts to analysis funding at Massachusetts establishments, one of many greatest threats to the state’s economic system. The legislation that created the tax requires the funds to go towards training and transportation initiatives.
“Individuals who thought this tax would backfire should concede now that it generates a considerable quantity of further income,” stated Evan Horowitz, government director of Tufts College’s Middle for State Coverage Evaluation. Nonetheless, he estimates that for each greenback the millionaire’s tax brings in, the state is more likely to lose 20 to 50 cents in earnings taxes from those that go away or undertake tax-avoidance methods. These oblique losses are onerous to pinpoint, he stated.
People with incomes over $1 million have been chargeable for 35% of complete funds in Massachusetts in 2022, the 12 months earlier than the millionaire’s tax took impact and the newest interval for which IRS data is on the market.
Some high-profile executives have certainly decamped for lower-tax states due to the surcharge. Reynolds, the previous Putnam Investments CEO, cited the mixture of the millionaire’s tax and the Massachusetts property tax. He moved to Florida final 12 months, shortly after Franklin Templeton acquired Boston-based Putnam.
The surtax “pushes you to make an earlier determination,” Reynolds stated. The 73-year-old finance government has been a fixture in Boston enterprise circles for many years, having constructed Constancy Investments’ 401(ok) enterprise earlier than becoming a member of Putnam in 2008. He stays on the board of the Massachusetts Aggressive Partnership, a set of the state’s strongest executives.
Enterprise leaders proceed to warn that even when rich residents didn’t abandon the state in droves within the tax’s first years, the departures will add up over time — and finally damage Massachusetts greater than it helps. They level out that $1 million incomes don’t go so far as they used to, significantly in a high-cost state like Massachusetts. The median dwelling value within the larger Boston space surpassed $1 million in June earlier than falling again underneath that threshold once more.
“I haven’t been to 1 assembly in Boston since this handed the place there haven’t been numerous folks saying that they’re shifting out of the state,” Reynolds stated.
Different high-profile Massachusetts residents who’ve moved are reluctant in charge the tax. Steve Pagliuca, a longtime Bain Capital government and Boston Celtics co-owner, has said his latest transfer to Florida was as a consequence of household causes and his retirement from day-to-day work at Bain, not the tax. He lately offered to amass the Connecticut Solar girls’s skilled basketball workforce and relocate it to Boston.
Within the absence of clear information, supporters and critics of the millionaire’s tax alike have touted research that help their arguments — even when they don’t inform the complete story.
A study by a progressive analysis group discovered that the variety of millionaires in Massachusetts jumped by 39% from 2022 to 2024, with the authors concluding the surtax is an efficient coverage device. The report’s information measured wealth, nonetheless, not the earnings figures that decide who’s topic to the tax.
A separate survey carried out by a enterprise advocacy group this 12 months discovered that tax coverage was the most-cited cause for residents’ strikes elsewhere. Few of these surveyed are topic to the millionaire’s tax, although. The outflow of residents to different states additionally predates the surtax and displays different components reminiscent of excessive housing costs.
Slater, the actual property developer, has buddies who left Massachusetts for locations like Florida and Texas — each due to the millionaire’s tax and for different causes. Whereas he has no plans to comply with them, he’s involved Massachusetts might improve the surcharge or add different taxes sooner or later.
New will increase have been on the desk this 12 months. Elevate Up Massachusetts, the labor-backed group that proposed the millionaire’s tax, is now pushing to extend state duties on company overseas earnings. Healey additionally proposed new taxes on sweet, prescribed drugs and artificial nicotine merchandise — levies that the state legislature finally rejected.
Ought to Massachusetts tax rich people additional, Slater stated he can’t say with certainty he’d stick round.
