States Should Forge Ahead With New Revenues in Face of Misleading Tax Migration Claims

Policymakers in several states are pursuing creative and fair solutions that provide widespread benefits to all their residents by asking wealthy households and corporations to pay their fair share. This is a wise choice, especially as states wrestle with fallout from the federal megabill that paired historic cuts to food assistance and health care with enormous tax breaks for the wealthy.

Yet predictably, anti-tax advocates and some wealthier taxpayers opposed to these policies are dusting off some tired, misleading arguments about so-called interstate tax flight. Rather than heeding these unfounded claims, decisionmakers in states like Colorado, Maine, Rhode Island, and likely others weighing progressive tax measures this year should follow Washington’s recent example and forge ahead.

Here’s why.

For one, most claims about interstate tax migration are grossly exaggerated. A robust body of evidence shows people are not primarily motivated to uproot their lives and leave their communities because of how much state tax they pay.

Two, these claims ignore the widespread benefits that fair revenue policies afford to all of a state’s residents by providing robust funding for public services, enhancing opportunity, and improving quality of life.

Tax-induced migration is not a common reason to move, regardless of income. Most people and companies are firmly rooted in their communities, and the few who do move most commonly cite jobs, housing, family, and even weather as the reasons for doing so — not taxes. Only about 1.5 percent of people make interstate moves in any given year and, when surveyed, more than two-thirds cite job- and family-related reasons as the primary driver.

In a landmark study released last year, two leading researchers on tax flight concluded that “the rich in high-tax states do not move any more often than those in low-tax states.” With anonymized access to every federal tax return filed from 2016 to 2023, the researchers were able to uniquely pinpoint whether an interstate move had occurred and, if so, estimate the state income tax liability of that taxpayer in both the state in which they lived and the one to which they moved.

While the researchers found that raising state tax rates likely has some marginal impact on where millionaires choose to live, they estimated any overall effects to be minimal: namely, that “if a state raises its top tax rate by 1 percent, it would ultimately see a 0.14 percent reduction in its millionaire population.” Given that finding, the researchers concluded that “every state has capacity to raise additional revenues from top earners.”

This new analysis is just the latest addition to the general consensus of mainstream research, which we previously detailed in a wide-ranging 2023 report. To highlight one finding: prior work on tax migration has concluded that while it’s true some higher-taxing states have trailed behind on population growth over recent decades, it’s chiefly due to factors like high housing costs, such as in California, or undesirable winter weather, such as in New York, Connecticut, and Massachusetts — not tax policy.

Meanwhile, when states approve higher tax levels on wealthier taxpayers, the resulting substantial revenue gains help enable all residents to have a better quality of life. States invest new revenues into their economies, local communities, and families’ pocketbooks in the form of stronger schools, better infrastructure, targeted tax benefits, and more access to economic opportunity. Those investments put people and communities in those states on a brighter path.

Take Massachusetts, for example. In 2022, Bay State voters approved a new top income tax rate for those with annual incomes over $1 million, widely known as the Fair Share tax. Since its implementation in 2023, the levy has delivered billions of dollars in new funding for transformative investments like universal free school meals, fare-free buses, and affordable child care. The tax has also routinely exceeded initial revenue projections — outpacing expectations by $3 billion over roughly its first three years.

Newly released IRS data do not provide evidence of a millionaire exodus from Massachusetts due to the new tax. Because the latest numbers only cover a partial year of Fair Share’s implementation and enable analysis of higher-income households generally (versus millionaires specifically), they shouldn’t be used for sweeping conclusions. Nevertheless, they do offer hints:

• Fewer of the highest-income households in Massachusetts — those with incomes above $200,000 (the highest income threshold available in the data) — left the state between 2022 and 2023 than did between 2021 and 2022. The outmigration rate was 0.97 percent for these households in the 2023 data compared to 1.15 percent the year prior. In other words, the state appears less likely to have lost higher-income taxpayers the year after Fair Share was approved than immediately before it.
• Fewer Massachusetts households overall moved to neighboring states between 2022 and 2023 compared to the year before, with one exception. Only New York – also a relatively high income-tax state – received more Massachusetts households over the 2022-2023 span than did the year before.
• About 9 out of 10 households leaving Massachusetts between 2022 and 2023 reported incomes below $200,000. That suggests other pressures, such as overall cost of living or lack of access to affordable housing — not taxes — are the dominant factor driving the state’s migration trend.

The evidence is clear: so-called millionaire migration is too rare to drive major tax policy decisions. While some concerns over population trends are understandable, state policymakers examining a reasonable tax increase on high-income households should focus on how such policies can improve the well-being of all residents. They can do so by ignoring misleading anti-tax arguments and instead taking bold action on what we know works to broaden opportunity and prosperity: raising the revenue required to support good schools; affordable housing, health care, and child care; reliable infrastructure, and the other elements of people’s long-term success.