Maryland’s Tax Reform Likely Won’t Cause Millionaire Migration

The moment Gov. Wes Moore announced his proposal to reform Maryland’s tax system, in part by raising income tax rates on high-income households, opponents began predicting that wealthy people would respond by leaving. Experience from other states and Maryland itself says that’s not the case. 

Maryland’s neighboring jurisdiction, the District of Columbia, offers an example. In August 2021, the District raised rates on taxable income over $250,000, effective in the 2022 tax year. The marginal tax rate on income over $1 million went from 8.95 percent to 10.75 percent. Wealthy households have stayed. As the DC Tax Revision Commission (of which I was the executive director at the time) reported last year: 

“Despite the tax increase – and despite a weakened stock market that significantly reduced capital gains income for many high-income residents – the number of full-year D.C. residents with adjusted gross incomes (AGI) over $300,000 was higher in 2022 than in any previous year. Over 24,000 full-year DC-resident households reported incomes over $300,000, a 3.5 percent increase from 2021 and a 27 percent increase from the pre-pandemic total in 2019.”

The District used the resulting revenue to raise child care teachers’ pay, provide housing for unhoused people, and boost tax credits for low-income working families. Those investments have strengthened the District’s economy and helped make it a more attractive place to live and work, with the D.C. population in 2024 exceeding 700,000 people for the first time since the 1970s. 

Such positive outcomes don’t fit tax-opponents’ rhetoric, but it is consistent with other states’ actual experiences. When states like California, Minnesota, and New Jersey have raised taxes on the wealthy, the vast majority of those households have stayed put, and revenues and economies have thrived. In a detailed review of the economic research, researcher (and ITEP board member) Michael Mazerov highlights a study of a 2012 three-percentage-point increase in the California tax rate on millionaires — four times larger than what’s proposed in Maryland. Using detailed state income tax data, the study identified a one-time departure of 535 millionaire households out of almost 67,000 such households, meaning that more than 99 percent of affected households stayed put, didn’t move, and paid the higher rates. And since then, the number of high-income California households has continued to grow. As a result, California is raising much more revenue than if the rate had stayed the same and no millionaires had left. 

Similarly, Massachusetts enacted a 4 percent surcharge on income over $1 million in 2022 that is raising more money than originally projected for schools and roads, as people continue to move to the Bay State. And when Maryland raised taxes on the wealthy back in 2008, opponents’ initial assertions of massive millionaire outmigration turned out to be just wrong. 

Why don’t families flee higher taxes? They are deeply connected to their communities through their workplaces, families, and friends. They also benefit from services that those taxes pay for, like schools, public universities, parks, and roads. Of course, there are always taxpayers on the move, whether in search of new jobs, a different lifestyle, or a warmer climate. Compared with the other factors affecting where people live, taxes – including taxes on high earners — just don’t make enough difference.  

That’s fortunate, because higher income taxes on the wealthy have important upsides. The very wealthy have an extraordinary amount of money, so such taxes can raise a lot of new revenue to pay for schools, health care, roads, and other services. And they can do so without adding to  taxes paid by low- and middle-income families, who typically pay a higher share of their incomes in taxes than the wealthy. Tax increases like what the District of Columbia enacted and what Moore has proposed thus advance both strong public services and tax fairness. 

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