- Massachusetts: Proposal to Increase Income Tax for Millionaires Takes a Step Forward
- February 25, 2016 | Authors: Chad Arfons; David M. Kall; Susan Millradt McGlone
- Law Firm: McDonald Hopkins LLC - Cleveland Office
- The group Raise Up Massachusetts, a coalition of labor, faith, and community organizations working to improve economic and social justice in Massachusetts, is hoping to create an additional tax of four percentage points on annual income above $1 million, by way of a state constitutional amendment. Known as the Fair Share Amendment, this initiative would take the current rate of 5.1 percent to 9.1 percent on that income above and beyond $1 million. According to the group, “millionaires should pay their fair share to make the critical investments in quality schools, affordable higher education, and safe transportation infrastructure that Massachusetts desperately needs.”
Raise up Massachusetts is celebrating the fact that last week, the Revenue Committee registered its support for the measure, H3933. This means that it will proceed to the Legislature for consideration, and could eventually end up on a ballot proposal in 2018.
As currently written, the ballot language reads as follows:
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, all revenues received in accordance with this paragraph shall be expended, subject to appropriation, only for these purposes. In addition to the taxes on income otherwise authorized under this Article, there shall be an additional tax of 4 percent on that portion of annual taxable income in excess of $1,000,000 (one million dollars) reported on any return related to those taxes. To ensure that this additional tax continues to apply only to the commonwealth’s highest income residents, this $1,000,000 (one million dollar) income level shall be adjusted annually to reflect any increases in the cost of living by the same method used for federal income tax brackets. This paragraph shall apply to all tax years beginning on or after January 1, 2019.
The Massachusetts Budget and Policy Center (Center) supports the Fair Share Amendment because household income, in the last 45 years, has increased very little, and any benefits have gone - disproportionately - to the highest income households, to the detrimental effect for the entire state. More specifically, “economic growth is not translating into significant economic progress for most of our people and this directly harms working families. The lack of more broadly shared economic progress also has harmed our state’s ability to make important investments that can make life better for working people.”
In addition, because a large share of total income growth is going to those who contribute the smallest share of their income in taxes, the state has had less to invest in education and transportation.
Citing a Massachusetts Department of Revenue estimate, the Center reveals that the tax increase would generate $1.9 billion of new revenue annually in 2019, and affect just half of one percent of all filers. The Center also notes that tax increases on top income households produce substantial new revenue to fund key public priorities, while they have little to no impact on the residence decisions of these households.
What is more, the Center points to research showing that the effects of targeted investments in things like education and transportation have a positive impact on individuals, and are essential for creating successful state economies.
Of course, not everyone would be happy with the increase. MassLive reported that opponents believe high earners are already paying significantly more in taxes, and that the new rate would make Massachusetts “an unfair place.” Using General Electric’s recent relocation from Connecticut to Massachusetts as an example, one opponent stated that “[m]illionaires have a way of going mobile. New Hampshire is just a short drive up Interstate 93.”
What is not controversial is how uncommon it is to use a constitutional amendment to enact tax rates. Only California and Alabama currently impose tax rates in this manner, rather than via legislation, as the Tax Foundation observed. States that establish their tax rates constitutionally have substantially less flexibility to react if conditions demand change; “[i]f Massachusetts became flush with revenue or if the tax increase turned out to be an awful mistake, it would take another constitutional amendment to change it.”