The Pioneer Institute’s latest report warns of the economic threat to high-cost regions posed by the rise of telecommuting.
The implication of the report, released on Wednesday, is clear: Businesses may be less tied to big-city employment hubs in a post-pandemic world where remote work is more acceptable, and policy-makers should think carefully about decisions that could spur any sort of exodus.
The Boston-based Pioneer Institute doesn’t mention the so-called millionaires tax proposed for Massachusetts, but it doesn’t have to. The proposed income tax surcharge on personal earnings above $1 million a year won’t go to voters until November 2022, at the earliest. But the battle lines already are being drawn. On one side: a contingent that argues raising taxes will drive away business investment and wealth to lower-cost states. On the other side: a group that says the state will need more revenue to help address inequities underscored by the COVID-19 pandemic.
The Pioneer Institute built a case against the tax proposal the first time around, before the Supreme Judicial Court shot it down in 2018. The libertarian-leaning think tank is clearly starting to do so again. In recent weeks, Pioneer has released reports recounting the tax-related challenges for Connecticut, and the migration of taxable wealth from Massachusetts to the income-tax-free states of New Hampshire and Florida.
The latest report describes business-related decampments from New York City and the San Francisco area, and cites polls showing anywhere from 16 percent to 34 percent of workers will telecommute after the pandemic ends. The future of work and its public policy implications are hot topics these days among Boston’s business and civic leaders. Several local chief executives have announced plans to downsize their headquarters, but no major companies have unveiled any departures from Boston since the pandemic began.
“We need to be careful about policies that could further lower the barriers to exit,” said Andrew Mikula, the Pioneer researcher who wrote the report. “It’s a uniquely vulnerable time for Massachusetts. [The pandemic] has exposed this vulnerability we have to this future where a premium we’ve placed on working in big, expensive cities is going to be less prevalent.”
Mikula said Pioneer’s recent reports have been fashioned with the looming millionaires tax in mind, and future reports will more directly address the potential impacts. He said Pioneer has been in talks with the Massachusetts High Technology Council, another prominent high-earners tax foe, about the issue.
Tech council president Chris Anderson said policy-makers should heed the warning signs to ensure the local employer base remains intact after the pandemic is over and federal stimulus funds run out.
“When that party ends, we’re going to be stuck with an underlying economy driven by the private sector that either can or cannot keep up with the level of [state] spending,” Anderson said.
Anderson said the changes wrought by the pandemic should prompt legislators to rethink the high-earners tax, initially conceived nearly eight years ago. If approved next year, the tax would impose a 9 percent income tax rate on personal income above $1 million, compared to the flat tax of 5 percent, with a stated goal of raising money for education and transportation.
A constitutional amendment is required to make that happen, and thus the proposal has followed a tortuous path. A majority of state lawmakers need to approve it one more time before it can appear on the 2022 ballot. Supporters say that by filing it as a legislature-initiated proposal instead of a citizen-initiated measure, they can avoid the legal issues that doomed it the last time around.
Andrew Farnitano, spokesman for the labor-backed Raise Up Massachusetts coalition, said he remains hopeful that lawmakers will vote sometime in 2021 to put the measure on the ballot next year. Farnitano dismissed Pioneer’s concerns about taxes on high earners.
“Massachusetts is never going to win a race to the bottom on who can cut taxes the most,” Farnitano said. “Our competitiveness as a state comes from our highly educated workforce, from being a great place for people to live and raise their families.”
Marie-Frances Rivera, the president of the left-leaning Massachusetts Budget & Policy Center, pointed to a recent MassINC poll that shows more than two-thirds of voters support the 4 percentage point surcharge on income over $1 million.
Rivera said the “fault lines” of inequity in the state have become more exposed in the pandemic. While more people will work from home, the need to fund good schools, durable roads, and reliable trains will remain, she said. “The needs that we have in the Commonwealth are not going to magically disappear because more people are telecommuting,” she said.