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Why Raising Taxes on the Wealthy Is No Fix for Runaway State Spending

High-tax states keep bleeding billions in taxable income as wealthy residents and businesses vote with their feet. The latest IRS data confirms it: raising taxes is not the answer to a spending problem—it accelerates the problem.



Lines of U-Haul trucks leaving high-tax states for low-tax havens have become a symbol of the modern tax migration.


America’s states face chronic budget shortfalls from ballooning pensions, entitlements, infrastructure promises, and post-pandemic spending. Politicians’ go-to fix? Target the rich with new wealth taxes on net worth, steep “millionaire” income surtaxes, capital-gains levies, or revived intangible property taxes.


The historical and modern record shows these policies consistently backfire. High earners, businesses, and their taxable income flee to low- or no-income-tax states like Florida, Texas, North Carolina, and Tennessee. Tax bases shrink, revenue falls short of projections, and the burden shifts to everyone else.


Historical Lesson: Old-School “Wealth Taxes” Collapsed and Were Repealed

Long before today’s billionaire-tax proposals, states imposed broad intangible personal property taxes on stocks, bonds, mutual funds, and financial assets—de facto annual wealth taxes. By 1965, 14 states still enforced them (Florida, Georgia, Indiana, Kansas, Kentucky, Michigan, Missouri, Nebraska, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, Virginia). Every one of them eventually repealed or sharply limited them due to evasion, administrative nightmares, negligible revenue, and capital flight.


Florida’s Intangible Tax Collapse (Clear Data Example) Designed to capture financial wealth, it peaked at nearly $1 billion annually (FY 1999–2000). By FY 2009–2010, after loopholes and avoidance, collections plummeted to just $174 million. Taxpayers used trusts and entity structures to make it effectively optional. The state repealed the annual tax in 2007, recognizing that it was driving investment and residents elsewhere.



Modern Tax Hikes Produce the Same Flight—With Even Bigger Numbers

Recent progressive income surtaxes, capital gains taxes, and proposed net-worth levies show the same pattern.


Latest IRS Data (2022–2023 Migration) – Billions in AGI Shifting to Low-Tax States

State

Net AGI* Change (2022–2023)

Key Notes

Florida

+$20.6 billion

Largest gainer; no income tax

Texas

+$5.5 billion

Strong inbound high earners

California

–$11.9 billion

Largest loser

New York

–$9.9 billion

Broad losses across brackets

Illinois

–$6.0 billion

Heavy high-earner outflow

Massachusetts

–$4.0 billion

4th-highest net loss

New Jersey

–$2.6 billion

Persistent decline

Source: IRS Statistics of Income Migration Data (released March 2026). High-tax states dominate the losers; low-tax Sun Belt states dominate the winners. Some analyses put California’s loss as high as $13 billion. (*AGI=Adjusted Gross Income)


Table: Case Studies of Tax Hike Fallout

State & Policy

Intended Goal

Actual Adverse Impact

Connecticut (1991 income tax + 2015 hike)

Fiscal stability

$653 million revenue shortfall post-hike; high earners left at ~$60/second AGI rate

Maryland (2008 Millionaires’ Tax)

Close the budget gap

~30% drop in millionaire filers; $1.7 billion total tax revenue loss from migration

California (13.3% top rate + proposed wealth taxes)

Fund services

24,670 high-earner households lost in one year ($16.1 billion AGI); ongoing $11.9B+ annual losses

Washington (7% capital-gains tax 2022)

Target wealth

Reversed net income gains; high-profile exits (Bezos, etc.)

The Undeniable National Pattern

IRS data year after year shows the same story: the highest-tax, most progressive states (California, New York, Illinois, New Jersey, Massachusetts, Connecticut) are the biggest losers of high-income residents and adjusted gross income. Low- or no-income-tax states are the biggest winners.





High earners move at higher rates than average. They take jobs, businesses, and future tax revenue with them.



Spending, Not Revenue, Is the Real Crisis

States do not have a revenue problem—they have a spending problem. When Connecticut, Maryland, California, New York, and others hiked taxes on high earners, they did not close gaps; they widened them by shrinking the pool of people willing (and able) to pay. Historical wealth-like taxes were repealed for the same reason. Modern proposals are producing preemptive flight even before passage.


The data is unambiguous: you cannot tax your way out of overspending when the people who foot the bill can—and do—leave.


The only sustainable path is the one politicians resist most: control spending, prioritize core services, and stop driving away the taxpayers who fund everything else. Until then, the tax-flight trap will keep snapping shut.


Sources:

IRS Official Data (Core AGI Migration Statistics 2022–2023)

Recent Migration Summaries & Analysis

Historical Wealth-Like Taxes

State-Specific Tax Hike Case Studies

Additional Context

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