Massachusetts’ millionaire tax is earning more than expected and could help make up for the last few years of high earners fleeing the state

The new tax on the wealthy, dubbed the “millionaires tax,” was approved by voters in 2022 and added an additional 4% tax on those earning more than $1 million.

According to the Boston Globe, after the tax was approved, the state initially estimated it would generate $1.4 to $1.7 billion in the first year. However, the state budgeted just $1 billion for the first year out of concerns that the impact of the new tax could be unreliable in the first year.

This new windfall for the state comes despite concerns that high-income earners would leave the state, exacerbating a problem seen in Massachusetts even before the new tax.

A study by the Pioneer Institute published in 2023 showed that Massachusetts saw a net loss of 25,200 tax filers in 2021. Those who left the state had an adjusted gross income of $4.3 billion greater than those who moved in. The change in the number of tax filers increased from the net loss of 20,400 tax filers in 2020 and an adjusted gross income of $2.4 billion.

Those who left tended to be middle- to high-income earners, per a study by Boston Indicators published in April. Most were on the high end, defined “as a family of four with an income of at least $140,000 — five times the poverty level in 2022.

However, a closer look at the data shows Massachusetts’ retention of millionaires is doing just fine. According to the IRS, Massachusetts tax filers with an adjusted gross income of at least $1,000,000 grew by nearly 10,000 in 2021, the year before the new tax was approved.

The real test for Massachusetts comes now as we wait and see if the highest earners start to dwindle moving forward and how much that might impact the revenue generated by the “millionaires tax.”