The anti-tax spirit runs deep in Massachusetts. After years of suffering the moniker “Taxachusetts,” voters clamped down. They passed a referendum in 1980 that set a 2.5 percent yearly limit on municipal property tax increases.
Proposition 2½ put governments on a diet and gave its prime sponsor, Citizens for Limited Taxation, a voice on state money matters. Life in City Hall has never been the same.
So it might seem surprising that polls find 70 percent support for a new state tax on income.
But not just any tax. This one would add a 4 percent levy on annual income over $1 million.
Last week, lawmakers meeting in a constitutional convention voted 137-57 to authorize the “millionaire’s tax” – the first step in tapping this revenue. The state’s Constitution prohibits a graduated income tax. To get around that, lawmakers have to endorse the tax in consecutive legislative sessions. Then it needs approval at the ballot box, which could come in 2018.
Though efforts to create a graduated income tax have failed five times since 1962, this one could advance. The Raise Up Coalition last fall submitted 157,000 signatures in support of it, double the number needed. The Legislature’s Committee on Revenue endorsed it in January, including yes votes from western Massachusetts state Sens. Benjamin Downing and Eric Lesser.
Back in 1994, the last time this idea came forward, “income inequality” was not the household expression it is today. The tax would affect not the top 1 percent of state earners, but the top one-half of 1 percent. Those who like to keep government on a tight leash will never warm to this revenue. And it’s unlikely the nearly 20,000 people the tax would affect are aboard.
For everyone else, two questions come to mind: Is it needed? Is it fair?
State revenue department estimates suggest the tax would raise almost $2 billion a year, or 5 percent of the state’s current $38.4 billion budget. Proceeds would be spent on public education, including higher ed, and on transportation needs.
State roads and bridges suffer from delayed maintenance. And our public schools need help at all levels, particularly in light of financial conflicts raised by charter and school choice programs. The added revenue could help make college more affordable.
The state routinely faces structural budget deficits that leave it struggling to keep up with basic operations and services. Recent shortfalls triggered early retirements. The Legislature passes its fiscal pain along to cities and towns by cutting local aid. The need is there, but so too are doubts about wise use of money the state already collects. Opponents warned last week the tax could chase millionaires from Massachusetts. They questioned whether the money would be used for its intended purposes. That’s a fair question. Advocates of the tax would have to be vigilant, if it passes, about how the money is used.
Now, fairness. A graduated income tax is the rule on the federal level, so why should it not be in play here? Because it isn’t allowed, low- and middle-income families pay a higher percentage of their incomes in state and local taxes — about 10 percent, compared to 6.5 percent for high-earning families, according to one analysis. That is the definition of a regressive tax system.
Even with the “millionaire’s tax,” low-and middle-income families would still pay a larger share of their income.
Is it fair for a larger proportional tax burden to fall on those of more modest means? Even some millionaires, like Boston real estate magnate Woody Kaplan and Arnold Hiatt, former CEO and chairman of Stride Rite, don’t think so. Nor do the dozen Massachusetts members of the group calling itself The Patriotic Millionaires. Kaplan noted in an interview that not so long ago, incomes of $150,000 in the U.S. were taxed at a 70 percent rate. That makes 4 percent seem minor.
The Raise Up Coalition has notched its first big win, but this drive is sure to face concerted opposition. So far, there is no group called Millionaires for Limited Taxation, but prospective members will find a way to be heard. Voters should listen, then do what’s best for the commonwealth.