For ultrarich Americans, paying taxes has remained a quasi-voluntary task for far too long, an obligation that is easily dodged by minimizing their taxable incomes and maximizing tax breaks and loopholes in the tax code. Money goes to money: Millionaires and billionaires are able to use their wealth to hide their fortunes.
That may soon be changing. Finally, there are signs of progress for tax reform at the federal level. The Biden administration announced a tax proposal aimed at very high earners: a new tax of at least 20 percent on all households whose wealth totals more than $100 million, including both their income and any increases in the value of their investments, or their so-called unrealized gains. If enacted, the new tax would generate about $360 billion in new revenue over the next decade, half of which would come from the roughly 700 billionaires in the United States.
That is a federal step in the right direction, one that should fuel the momentum around the fair-share tax amendment in Massachusetts, also known as the millionaires tax. In November, Bay State voters will decide whether or not an additional 4 percent tax should be applied to the portion of a household’s taxable income above $1 million a year. Biden’s tax-the-ultrarich proposal affirms the notion that high earners can and should pay a more fair share of their income in taxes, and that’s true at the state level as well.
If the millionaires tax is approved, fewer than 1 percent of Massachusetts filers would pay an effective state tax rate — that’s the percent of their income that a family or an individual pays in taxes — which is closer to the effective rate the rest of us mortals pay.
According to the Massachusetts Budget and Policy Center, the millionaires tax would tackle economic and racial justice “both in the way the tax is collected — from very high-income households, which are predominantly white — and through the ongoing investments it would make possible,” wrote Kurt Wise, senior policy analyst at MassBudget.
It’s an awkward but undeniable fact: There are a disproportionately high number of very white rich households in Massachusetts compared with the number of millionaires of color; thus, high-income, white households would pay “about 86 of every 100 dollars of the tax revenue collected from a millionaire tax,” Wise wrote.
Yet that’s not what would have the greatest impact on racial justice. If the millionaires tax passes, it would require state legislators to make conscious budgetary decisions to reinvest the extra revenue in communities of color and low-income areas.
If the amendment is approved by voters, it would bring at least $1.3 billion in annual revenue and affect roughly twenty thousand millionaires. Critics of the millionaires tax will use the state’s newfound riches as a reason to call the amendment unnecessary. Between the federal stimulus dollars and an unexpected budget surplus, the state coffers are awash in cash these days. But that revenue is going to disappear in a few years. “You don’t answer a long-term need with a short-term solution,” Wise told me.
Indeed, revenue from the fair share amendment is supposed to go toward the state’s unfunded transportation and education commitments. And to make these long-term transformative investments, the Commonwealth must find sustainable, ongoing sources of revenue. Enter the millionaires tax.
To be clear, Massachusetts would not be not going out on a limb with a millionaires tax: Nine other states and the District of Columbia tax high-income filers at top rates very near to or above 9 percent. California taxes residents who make over $625,000 at 12.3 percent.
One favorite argument of opponents of the new tax is that millionaires are going to flee the state en masse. But millionaire migration is largely a myth, as the most comprehensive study of elite taxation and mobility concluded.
“The most striking finding of this research is how little elites seem willing to move to exploit tax advantages across state lines in the United States,” researchers wrote.
A graduated income tax is a fact of life for federal filers. Those who make more, pay more. Graduated state tax systems across the income spectrum are also common (as are, yes, zero state tax states). In Massachusetts, where there is so much wealth and yet so much poverty, starting with an extra tax tier for those who are fortunate enough to make over $1 million in a year seems only just.
Marcela García is a Globe columnist. She can be reached at marcela.garcia@globe.com. Follow her on X @marcela_elisa and on Instagram @marcela_elisa.