One hundred and eleven days from today, you will be asked to vote on state ballot Question 1, that will spark millions of dollars in advertising to get your attention. The Nov. 8 “Fair Share” ballot question adds this language to Article 44 of the Massachusetts Constitution:
“To provide the resources for quality public education and affordable public colleges and universities, and for the repair and maintenance of roads, bridges and public transportation, …there shall be an additional tax of 4% on that portion of annual taxable income in excess of $1,000,000 … adjusted annually to reflect any increases in the cost of living … This paragraph shall apply to all tax years beginning on or after January 1, 2023.”
This millionaire’s tax has already passed two Joint Sessions of the General Court, in 2019 and 2021. The “Fair Share Amendment” creates a 4% surtax on annual income over $1 million. Someone earning $1.25 million would pay the surtax only on the $250,000 over $1 million.
In January of 2022, the nonpartisan Tufts Center for State Policy Analysis published a study of the impact of the millionaire’s tax. According to the Tufts study, the new surtax would apply to only 0.6% of Massachusetts households in any given year (21,000 taxpayers), but “it could raise a meaningful amount of money, as those few households account for more than one-fifth of all taxable income in the state.”
Opponents of the surtax threaten that it will lead to a stampede of rich people from the state, or force them to shield their income to avoid paying the tax. But the Tufts analysis says the tax on high earners could raise $2.1 billion in 2023 — “and do so in a highly progressive way likely to advance racial and economic equity.” Some millionaires might exodus to other states, “but the number of movers is likely to be small.”
Massachusetts might lose 500 families, which would lower Fair Share revenue by 5% ($100 million in 2023.) Some tax avoidance could happen but outmigration and tax avoidance combined would cut the revenue projections by 35%, leaving a net gain to the state of $1.3 billion in its first year. That’s less than 0.3% of total personal income in the state. “Corporations would be unlikely to alter their operations,” the Tufts study notes, “as they wouldn’t be affected by increases in the income tax.”
The surtax threshold will increase with inflation annually. Over time, households could earn well in excess of $1 million before becoming subject to the surtax. “It’s much more common for families to experience a one-time million-dollar windfall than to make $1 million year after year,” the Tufts analysis says, “such households would pay the surtax in their one high-earning year, and likely never again.”
Most U.S. states — and the federal government — have an income tax that applies higher rates to higher earnings. Massachusetts has a “flat” income tax. Business groups opposing the millionaire’s tax refer to it as “The Graduated Tax Trap.” The Massachusetts High Technology Council, which represents corporate giants like Bain Capital, Raytheon, and Putnam Investments, has been trying to keep this vote off the ballot for years. But the state Legislature put the Fair Share amendment on the ballot themselves for this November.
There are racial and economic equity implications from this surtax: whites comprise nearly 90% of all million-dollar earners in Massachusetts. White families are three to four times more likely to earn seven figures than Asian, Hispanic, or Black families. As one state senator noted during debate: “Taxpayers at the lower end of the income scale pay a greater percentage of their annual income in state and local taxes than our higher-income taxpayers do. This is deeply unfair.”
“I’m sure the opponents of this are going to look under any rock, every rock, to try to find some kind of way from preventing themselves from having to pay their fair share,” State Representative Jim O’Day (D-West Boylston) told reporters. ”They’d rather spend $100 million on defeating this than spend an extra $40,000 or $50,000 in taxes.”
A poll released last January by MassINC found that 70% of registered voters support the ballot question, including 44% who said they strongly support a surtax that would be spent on transportation and education. Millionaires will spend a fortune on TV and internet ads to mislead voters into thinking their taxes are going to rise, too. But those of us who are far from being millionaires, just want the rich to pay their fair share.
Al Norman’s Pushback column appears every third Wednesday. Comments can be sent to info@sprawl-busters.com.