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The idea of a tax increase aimed at millionaires has been catching on in a number of states. Massachusetts voters passed one in late 2022, and the state said last month that the tax had brought in $1.8 billion for schools and roads. It was more than expected, equal to about 3% of the state budget. But as Walter Wuthmann of Member Station WBUR reports, people are wondering whether it will drive away rich people.
WALTER WUTHMANN, BYLINE: On a recent afternoon in Boston before the start of the ongoing NBA Finals, the fans and millionaires were out in force at TD Garden.
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UNIDENTIFIED PERSON: Please welcome managing general partner of the Boston Celtics and president of the Boston Celtics Shamrock Foundation, Steve Pagliuca.
WUTHMANN: Pagliuca spoke about how meaningful it was for him to co-own the team as a kid from an immigrant family who grew up watching the Celtics.
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STEPHEN PAGLIUCA: I feel like the luckiest person in the world to be involved with this group and the Celtics, a labor of love and hope...
WUTHMANN: But the former private equity executive made local headlines last year when he moved out of state. Public voting records show Pagliuca officially changed his residence to Florida in January of 2023, the same month the tax went into effect. Pagliuca told NPR he moved for personal reasons in his retirement. He also told the Boston Business Journal he's no fan of the millionaires tax and that it will drive business away.
MATTHEW ERSKINE: I've had three clients who would have had income that would have meant they would have the millionaires tax every year, and all three of them have left for Florida.
WUTHMANN: That's Matthew Erskine, a wealth adviser in Worcester, Mass. Erskine says there are other ways to avoid paying the tax, which puts an additional 4% charge on income over $1 million, like shielding income from home sales in a trust.
ERSKINE: The key to defeating the millionaires tax is to defer the realization of income, and there are ways of doing that.
WUTHMANN: Economists say there's not yet enough data to see exactly how many high earners have left the state. Evan Horowitz of the Center for State Policy Analysis at Tufts University says early indicators show some people are managing to avoid the tax but not enough to make a significant dent.
EVAN HOROWITZ: It is likely encouraging people to change their behaviors, whether it's - probably a few people leave the state but more often hide their money. But the net effect is still that the state has more revenue because of this tax than it would have otherwise.
WUTHMANN: His center found the tax is paid by only the top 1% of households, which have 20% of the state's taxable income. That tax means hundreds of millions of dollars that's now earmarked for education and transportation. Last year, that money funded free public school meals for every child in the state.
Other states are now looking at Massachusetts' example. Jared Walczak is the vice president of state projects at the nonpartisan Tax Foundation. He says blue states across the country are more and more turning to wealth taxes as a way to raise revenue.
JARED WALCZAK: New York adopted higher income taxes on the wealthiest individuals. Minnesota adopted a higher rate on capital gains income, and there are other states that are exploring either higher income taxes or other sort of taxes on net worth.
WUTHMANN: Walczak says he's skeptical of the benefits of these millionaires' taxes. He argues when one of these high earners moves away, the state loses on multiple fronts - their taxes as well as possible investments that create jobs. But Evan Horowitz of Tufts says the impact of the tax falls somewhere in between the advocates' promises and the critics' warnings.
HOROWITZ: If you want to raise some money from your wealthiest and highest income residents, you can do that with a millionaires tax. You almost definitely will not raise as much money as progressive supporters tell you you will raise, but you can raise real money this way. And the risks of, like, a total breakdown in the state economy are fabricated.
WUTHMANN: The text was approved by a narrow majority of voters backed by unions and progressive groups and seemed to deliver in the first year. Now experts are assessing how the millionaires will respond. For NPR News, I'm Walter Wuthmann in Boston. Transcript provided by NPR, Copyright NPR.
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