Member of Progressive Massachusetts; Executive director, Jetpac Resource Center, Muslim-American political advocacy group; Salem resident
Do you want to live in a society where no one is hungry and everyone has a warm, safe home? Is it a priority for you that we collectively help those who are going into deep poverty because of COVID-19?
For me, the answer to these questions is a resounding “yes,” and that’s why I support raising taxes on wealthy households during this profound economic crisis. Why focus on unearned income, though, and not raising taxes on high salaries? Well, to raise taxes on earned income above $1 million — the so-called millionaires’ tax — would require a constitutional amendment, which could take years. We can’t wait.
The pandemic is throwing Massachusetts residents into crushing poverty right now while 20 Massachusetts-based billionaires saw their collective wealth rise $17.2 billion from March through October.
Beacon Hill could raise taxes tomorrow on unearned income — dividends, interest, and capital gains — the profit people make from selling stocks, real estate, and other assets. The House defeated a plan to do that last fall, but we should continue the effort.
Currently, unearned income except short-term capital gains is taxed at 5 percent, the same as earned income. According to the Massachusetts Budget and Policy Center, each additional percentage tax increase to long-term capital gains would raise approximately $365 million annually in state revenue “during periods of strong economic and/or stock market performance.” Each 1 percentage point tax increase on income from dividends and interests would generate about $100 million yearly during similar conditions.
We were already a society of haves and have-nots before COVID-19, and this ugly reality has only gotten worse with more than a million Massachusetts residents going hungry. Increasing taxes on unearned income would help correct some of our society’s wealth imbalance because more than half the investment in corporate stocks and mutual funds in the US is held by the wealthiest 1 percent, whereas the bottom 90 percent of the population holds less than 12 percent.
An added tax on unearned income — particularly if combined with a future increase on annual incomes over $1 million — would help us reduce this inequality and begin to end homelessness and food insecurity in Massachusetts.
Research Director for Pioneer Institute, a Boston-based think tank; Norwood resident
In November, the Massachusetts House roundly rejected a budget amendment that would have raised the tax rate on long-term capital gains and most other unearned income from 5 percent (which is also the earned income tax rate) to 9 percent. There are good reasons for that.
Supporters of the amendment would like you to believe it would only affect “fat cats.” But it would ensnare taxpayers who sell assets and investments held for more than one year, including stocks and bonds, with some exemptions for income-eligible seniors.
The new tax rate also would apply to capital gains realized from selling personal residences after the existing $250,000 exemption for single filers and $500,000 for joint filers, with the additional exemption for low-income seniors. The amendment would be the equivalent of a retirement tax on many people who were never millionaires; people who worked for decades and paid their mortgage and taxes, only to face another big tax bill.
At 9 percent, Massachusetts would have the nation’s highest effective tax rate on long-term capital gains for taxpayers with annual adjusted gross incomes between $60,000 and $125,000, calculating from Tax Foundation data. We currently rank 27th in this regard among states. Although our rate would nominally trail California (9.3 percent) and tie Oregon’s, both those states allow some taxpayers to deduct home mortgage interest. Oregon also allows a deduction for federal taxes paid.
In 1963, President Kennedy warned, “The tax on capital gains directly affects investment decisions, the mobility and flow of risk capital from static to more dynamic situations, the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential for growth of the economy.”
High-tax California has been learning the hard way that companies are mobile. Oracle, Hewlett Packard, and Charles Schwab are moving their corporate headquarters from California to Texas, and Tesla CEO Elon Musk threatened in May to move his California-based company to Texas or Nevada. Musk, himself, has moved to Texas.
Unfortunately, raising taxes on unearned income wouldn’t just affect the wealthy; it would impact retirees and cost jobs as we struggle to recover from the economic effects of COVID-19.
As told to Globe correspondent John Laidler. To suggest a topic, please contact email@example.com.
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