Remote work growth adds dimension to tax debate as exodus of wealth from Massachusetts continues

By Matt Murphy

FEB. 2, 2021…..The combination of new remote working opportunities made popular during the COVID-19 pandemic and higher income taxes on wealthy residents could land like a one-two punch on the chin of the Massachusetts economy and state finances, the author of a new study said.

Greg Sullivan, the state’s former inspector general and the research director at the conservative-leaning Pioneer Institute, said the ongoing exodus of wealth from Massachusetts to low-tax states like Florida and New Hampshire could be amplified in coming years.

The popularity of new work arrangements that no longer tether workers, or their employers, to geographic location could make it easier for workers to seek housing or lifestyle changes elsewhere, he said.

The outcome of a proposed surtax on income over $1 million and a Supreme Court case in which New Hampshire is challenging Gov. Charlie Baker’s right to tax the income of workers living in New Hampshire, but working remotely for Massachusetts companies, could also become factors.

“My concern has to do with the competitiveness of the state,” Sullivan said.

Sullivan and the Pioneer Institute published a report this week that found between 1993 and 2018 a total of $20.7 billion in adjusted gross income left Massachusetts, with 46.5 percent of that wealth going to Florida and 26 percent to New Hampshire.

Both Florida and New Hampshire have no income taxes, and in Florida residents do not pay capital gains or estate taxes. The average taxpayer who left Massachusetts for Florida in 2018 earned $120,325, while those leaving for New Hampshire earned less, or about $64,992.

The state Legislature will decide, potentially by the spring, whether to put a question on the 2022 ballot that would impose a 4 percent surtax on all income above $1 million. The tax on wealthier residents has been pitched by proponents as a revenue generator for education and transportation, worth up to $2 billion a year.

But critics have long said it could prompt employers to steer clear of Massachusetts and wealthy residents to move out of state.

“I think that there’s no question that the post-COVID continued growth of work from home arrangements creates a real risk for a state like Massachusetts just because there are so many reasons why someone would want to move to New Hampshire,” Sullivan said.

“The proposed surtax could exacerbate that,” Sullivan said.

Gov. Baker has not taken a position on the surtax, but in his State of the Commonwealth address last week he talked about the importance of adapting smartly to “the future of work” after the COVID-19 pandemic is under control.

The wealth tax will need to be advanced again at a Constitutional Convention in the 2021-2022 session in order to go before voters on the statewide November ballot in 2022. While there was some turnover on Beacon Hill this session, the Legislature easily advanced the proposal 147-48 in June of 2019 and new Speaker Ron Mariano supported the measure two years ago, after initially voting against it.

Neither Rep. Jim O’Day nor Sen. Jason Lewis, the principal sponsors of the Constitutional amendment in both branches, could be reached for comment Tuesday to discuss if and how the pandemic has impacted their views on wealth taxes.

Sullivan said tax policy alone is not necessarily driving wealth out of the state. He also cited the high cost of living, density and weather as contributing factors.

While Florida has seen more than 70 percent its wealth migration into the state come from taxpayers earning $200,000 or more, Pioneer’s research found that less than 40 percent of taxpayers leaving Massachusetts fell in that same income bracket.

Immigration has also helped to offset population decline in Massachusetts, according the Pioneer report, but on average an immigrant moving to Massachusetts earned $36,809 in 2018 compared to an average adjusted gross income of $87,628 for taxpayers who left Massachusetts for other states.

After Florida and New Hampshire, the remaining 27 percent of the income leaving Massachusetts went to a mix of warm or lower cost-of-living states like California, Maine, North Carolina and Texas.

The greatest influx of wealth to Massachusetts over the same 15-year period came from New York, Connecticut, New Jersey, Pennsylvania and Illinois, according to Pioneer.

“The big picture takeaway is that Massachusetts and New England states, really, has been in pattern of losing large amounts of income to other states,” Sullivan said.

Also Tuesday, Sen. Elizabeth Warren announced she is joining the U.S. Senate Committee on Finance and plans to introduce legislation implementing a nationwide wealth tax of 2 cents on every dollar earned over $50 million, with an additional surtax on wealth over $1 billion.