Debunking the Myth of the Fleeing Millionaire

This November, the Massachusetts electorate will vote on a ballot initiative that will have profound consequences: the ability for the state to amend its constitution and levy a 4 percent surtax on all individuals that have an annual income of one million dollars or more. 

The Fair Share Amendment – or “millionaire’s tax” as it is known colloquially – is expected to raise significant revenue with the majority, if not all, of the monies to be invested in education and public transportation. It’s of no surprise then that the initiative is very popular with Bay Staters. According to a poll conducted late last year, 70 percent of the electorate support the initiative.

But its popularity has not stopped opponents from deploying recycled talking points expressed by wealth defense specialists. They argue that increasing taxes on high income earners are counterproductive because they will move to other states with a less punishing tax environment. A study by The Beacon Hill Institute estimated that about a fifth of Massachusetts’ 20,970 million-dollar earners will pack their bags and leave within the first year of implementation, shrinking the tax base and hurting the state’s economy. 

The recent departure of some high-profile individuals and businesses from California has been cited as an example of progressive excess and is listed as a reason why Massachusetts should not pass the ballot initiative. But evidence of millionaire departures due to higher taxation or even a pronounced exodus of Californians is extremely thin, even with the emergence of remote work that has made employee mobility easier. 

Data indicates that – while migration outflows are greater than inflows in California, and it did increase during the pandemic – there is nothing to suggest that a mass exodus is currently taking place.

The Public Policy Institute of California (PPIC) recently demonstrated that those who continue to migrate to the state are actually high-income earners. It is the working and middle classes who are forced to leave California due to the ongoing affordability crisis, particularly in relation to housing. This directly contradicts the assertion that raising taxes leads to the departure of  wealthy individuals. As Hans Johnson, a senior fellow at the PPIC, writes: “The fact is that California has been losing low and middle income residents to other states for some time while continuing to gain higher-income adults.”

Research conducted before the pandemic revealed that millionaires tend to stay put when income taxes are increased. Out-migration would physically disconnect them from their social and business networks and withdraw their access to a number of essential and desirable amenities. Cristobal Young and Charles Varner’s 2014 study also illustrated that the number of million dollar earners in California grew even after new taxes targeting them were introduced.

And this trend of a millionaire surge continues today. Between 2010 and 2019, the number of Californians who reported an income of a million-dollars or more in their tax returns increased 123.6 percent, from 42,090 to 94,120. By comparison, million-dollar earners in Massachusetts doubled from 10,237 to 20,970 in the same period.

The Fair Share Amendment is necessary to raise the revenue needed to improve both the conditions of and access to public transit. Similar measures will be essential in addressing other challenges that impact states like California and Massachusetts, for example, increasing the supply of low-cost rentals and de-commodifying housing in order to resolve the acute affordability and houselessness crisis of their metropolitan areas. 

It is important to keep in mind that the true impact or consequences of a specific policy cannot be entirely known until it is passed and implemented. But according to the data we have available, raising taxes on high-income earners do not trigger a wave of millionaire out-migration.