A century-old provision of the Massachusetts Constitution commands that if the commonwealth taxes income, it must do so at a “uniform rate.” Five times in the modern era — in 1962, 1968, 1972, 1976, and 1994 — tax-and-spend liberals have invited voters to discard that rule and make it legal to soak the rich at higher tax rates. Five times voters have said no. Activists tried a sixth time in 2018, but their proposed initiative was so defective that the state’s highest court ruled it unconstitutional.
Now comes Attempt No. 7.
Meeting in joint session Wednesday, the Massachusetts House and Senate are poised to approve an amendment that would impose a 4-percentage-point surtax on all income above $1 million. Since the current income tax rate in Massachusetts is 5 percent, the proposed “millionaire’s tax” would leap to 9 percent — a whopping 80 percent increase in the marginal tax rate. Assuming the Legislature votes in favor of the amendment, it’ll go on the state ballot next year. And since both Senate President Karen Spilka and House Speaker Ron Mariano have endorsed the measure, the outcome of Wednesday’s vote is not in doubt.
There is considerable arrogance in the way advocates of the surtax blithely disregard the voters’ repeated refusal to overturn the constitutional ban. Their attitude seems to be that no matter how many times the people uphold the uniform-rate rule, there is no reason to take them seriously. But just how serious are the claims of the pro-tax crowd?
Those pushing for a millionaire’s tax sometimes justify their demand by insisting that the wealthy don’t pay their fair share in taxes. But the income tax is not regressive. Taxpayers making $1 million and up, who earn 22 percent of all income in Massachusetts, pay 24 percent of all income taxes. Those million-dollar residents constitute just 0.5 percent of the state’s more than 3.8 million tax filers. Yet they fork over nearly a quarter of all income taxes paid, according to data published by the Department of Revenue.
If ever there was a time that state government didn’t need more money, that time is now. Massachusetts is raking in tax dollars at a record-busting pace. So far this fiscal year, state government revenue is nearly $5.7 billion ahead of where it was last year. That is not only more than Beacon Hill was anticipating at the start of this year, it is more than was forecast at the start of last year — before anyone had heard of COVID-19. And that doesn’t include the additional $5.3 billion showering down on Massachusetts from the federal government. The State House News Service summed up the situation in a headline: “State Awash in Extra Cash Ahead of Surtax Debate.”
But the strongest argument against the millionaire’s surtax is that it will deal a body blow to the Massachusetts economy.
In a study released Tuesday, the Beacon Hill Institute quantified the effects that will be caused by outmigration, the relocation from Massachusetts by businesses and high-income individuals that will be a consequence of a steep new surtax. Already, nearly $1 billion exits the Bay State each year, as residents move to low-tax states, especially Florida and New Hampshire. The proposed surtax will markedly increase that flow.
The new study calculates that within the first year of implementation, the surtax will have spurred nearly 4,400 additional families to “vote with their feet” by leaving Massachusetts. More than 9,300 private-sector jobs will be lost. Real disposable income will be approximately $960 million below what would otherwise be the case. Income tax collections will go up, but by considerably less than the $2 billion surtax proponents predict. And the added drag on economic activity will cause sales and property tax levies to fall short as well.
This week, more than 150 Massachusetts businesses representing almost 16,000 workers sent lawmakers an open letter imploring them not to hobble the state’s economy with a stiff new tax, and expressing “alarm” at the proposed constitutional amendment. They, like the Beacon Hill Institute’s researchers, know that a surtax aimed at millionaires is bound to injure countless people who will never earn anywhere close to a million bucks. That is why voters have repeatedly pulled the plug on attempts to soak the rich. If the Legislature insists on going forward with this latest scheme, voters will have to say no once more.
Jeff Jacoby can be reached at email@example.com. Follow him on Twitter @jeff_jacoby. To subscribe to Arguable, his weekly newsletter, visit bitly.com/Arguable.