A Pioneer Institute report on outmigration in the state of Massachusetts showed that high state tax rates are spurring wealthy residents to move to states with lower tax burdens.
The rate of outmigration in the state has jumped 1,100 percent since 2013, the study published by Boston University’s Questrom School of Business found.
That represents 39,000 people moving out of Massachusetts, where the state tax rate is 5 percent. Income over $1 million is taxed at an additional 4 percent and some capital gains are taxed at 8.5 percent.
If the outmigration trend continues at the same rate until 2030, 96,000 residents with a combined gross income of $19.2 billion will leave the state each year.
Due to these departures, the state will lose almost $1 billion in income per year.
Since 2011, the state has lost about $821 million in tax revenue due to outmigration.
According to the study, the top reasons for the outmigration are income tax rates, housing costs, and healthcare costs.
The increased mobility afforded by the trend toward remote work has made more outmigration possible. People are able to move to areas with lower taxes and costs of living while making the same salary, allowing them to have more disposable income and savings.
Most of those leaving the state are of prime working age and are high-income earners.
While more 26-34-year-olds are leaving, the most income loss comes from the 55-64 age bracket.
The top five states to which Massachusetts residents have moved are Florida, New Hampshire, Maine, North Carolina, and Texas.
Of these, Florida and Texas have no state income taxes. New Hampshire only taxes interest and dividends at 3 percent, while North Carolina’s rate is 4.5 percent.
Maine’s income tax rates are higher than those in Massachusetts for people making less than $1 million, ranging from 5.8 percent to 7.15 percent.
Southern states saw the majority of income transfer from Massachusetts, even though more than half of those who moved stayed in New England.
Massachusetts, with a population of around 7 million, is growing at only .27 percent, which is below the national average.
In comparison, southern states like Florida, Texas, and South Carolina are growing three times the national average.
Besides the economic impact of outmigration, the trend also impacts the state’s political influence.
While Massachusetts won’t likely lose congressional seats unless its population begins to decline, southern states experiencing rapid growth will add seats, shifting the power dynamics in their direction.
Massachusetts continues to have a strong labor market and has seen only a small decline in workers, about 95,000, so far.
While a strong labor market would have spurred people to move to the state prior to COVID-19 and the surge in remote work, such movement will be more muted as remote work continues.
Massachusetts has the third-highest percentage of remote workers, at 36.36 percent.
Another way the state could lose tax revenue as remote work continues is through a drop in commercial real estate values, particularly in larger cities like Boston, where the drop has already begun.
Companies that allow remote or hybrid work will not need office space or will need less office space, which will lead to a drop in demand for commercial real estate.
If fewer new office buildings are built and/or the price of commercial real estate falls, this will also impact tax revenues in the state.
Boston is experiencing a record vacancy rate of 18.8 percent in its commercial buildings due to the rise of remote work.
