As Massachusetts lawmakers gather tomorrow for another attempt to impose a massive income surtax on family business, a new analysis by Bloomberg news demonstrates the devastating impact of tax increases on economic activity.
Data from the Internal Revenue Service and the Census Bureau shows that business owners and entrepreneurs are heading for the exits in high-tax states and bringing their income to states such as Florida and South Carolina.
Bloomberg found that Connecticut, New York and New Jersey face the largest financial drains from the 5 million Americans who move from one state to another each year. Connecticut lost the equivalent of 1.6 percent of its adjusted gross income, according to Bloomberg, because the people who moved out of the Nutmeg state had incomes that were 26 percent more, on average, than those people who moved in.
Moreover, “leavers” outnumbers “stayers” by a five-to-four margin.
Massachusetts suffered a net loss of $1.4 billion in adjusted gross revenue from people moving in and out of the commonwealth. New York lost $8.4 billion and New Jersey, which recently adopted its own version of the so-called Millionaires Tax, lost $3.4 billion.
Florida posted a net income influx of nearly 3 percent of the state’s adjusted gross income in 2016. South Carolina, Idaho and Oregon were also among the largest gainers in the interstate shuffle, according to Bloomberg.
“The income surtax constitutional amendment to be debated tomorrow takes direct aim at owners of small and family owned business in Massachusetts. That sort of unfair tax would clearly accelerate the departure of the very people we need to maintain our economic growth,” said John Regan, President and CEO of Associated Industries of Massachusetts.
A graduated income tax would take an estimated $2 billion each year from some 17,000 Main Street businesses and others that pay taxes at the individual rate. These companies are already drowning in more than $1.5 billion in new taxes and fees to pay for a financial shortfall in the Medicaid program and to fund the new paid family and medical leave program.
The data on our-migration from high-tax states is consistent with other studies of tax policy.
Connecticut in 2009 added a 6.5 percent income tax bracket for those earning more than $500,000 per year. The state followed up with a comprehensive $1.5 billion tax increase in 2011 to deal with a budget shortfall. A final round of tax increases took effect in 2015.
According to information compiled by Pew Charitable Trusts, tax revenue for all 50 states is averaging 6.3 percent higher than it was at the start of the 2008 recession. Connecticut tax revenue, on the other hand, is only 3.8 percent higher, despite the three tax increases.
Once the economic heavyweight of New England, Connecticut is the only state in the nation that has yet to recover the jobs lost during the economic downturn.
Income surtax laws have failed in other states as well.
Within three years of Maryland enacting its millionaires tax, 40 percent of the state’s seven-figure earners were gone from the tax rolls - and so was $1.7 billion from the state tax base.
Boston College researchers studied the migration of wealthy households to and from New Jersey. They concluded that wealthier New Jersey households did in fact consider the high-earner taxes when deciding whether to move to or remain in New Jersey.
The researchers’ data analysis found that from 1999 to 2003 - before the millionaires’ tax was imposed - there was a net influx of $98 billion in household wealth into the state. After the tax was implemented, an increasing number of wealthy families left the state, resulting in a loss of $70 billion in wealth.
Want updates on the income surtax debate? Contact Brad MacDougall, Vice President of Government Affairs at AIM, email@example.com.