Metro

Business-backed group says proposed tax would chase away top earners

Unions and liberal groups argue the proposed amendment would raise an additional $1.9 billion annually to fund improvements to transportation and education.

Pat Greenhouse/Globe Staff, file

Unions and liberal groups argue the proposed amendment would raise an additional $1.9 billion annually to fund improvements to transportation and education.

A proposed amendment to the Massachusetts Constitution that would raise taxes on the rich poses a serious threat to the state’s fiscal stability and economic well-being, according to a scathing analysis released Monday by an influential business-backed think tank.

The Massachusetts Taxpayers Foundation released the warning two days before the Legislature gathers in a constitutional convention, where lawmakers are expected to vote to place the so-called millionaire’s tax on the 2018 ballot.

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If ratified by voters, the amendment would impose an additional tax of 4 percent on annual income of more than $1 million. State officials say about 19,600 people, or 0.5 percent of all filers in Massachusetts, would be affected.

Unions and liberal groups argue the proposal would raise $1.9 billion annually, money that’s needed to fund improvements in transportation and education.

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But the foundation says the amendment would “tax talent – Massachusetts’ principal competitive advantage.”

“The appeal is easy to understand — it is projected to raise almost $2 billion per year; does not require legislators to take a vote on a tax increase; and targets a small number of wealthy taxpayers,” the foundation says in its report. “But as the old adage suggests, if it sounds too good to be true, it probably is.”

The group argues it is unlikely the amendment would generate $1.9 billion, because some rich residents would leave Massachusetts rather than pay higher taxes.

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The foundation points in particular to a group of 900 people who earn more than $10 million annually, largely from investments. It says they would have the “motivation and flexibility to avoid the additional tax burden.”

The foundation also argues that one-quarter of the $1.9 billion would be generated through capital gains taxes, which are notoriously volatile and crater when the economy sours.

Even if the revenue were to materialize, the foundation says, the money would not necessarily fund transportation and education, because the Legislature could decide to spend it on other things or use it to plug annual budget gaps.

The foundation also warns that if lawmakers conclude the tax is harming the economy, it would take four years to change it or repeal it, because it would require another constitutional amendment.

Raise Up Massachusetts, the coalition of community, religious, and labor groups that has sponsored the amendment, blasted the foundation’s analysis as “wrong on the law and wrong on the impact.”

“The millionaires who fund the Massachusetts Taxpayers Foundation are clearly terrified that voters are going to ask them to pay their fair share in taxes, because the foundation is deliberately trying to mislead legislators and the public,” the coalition said in a statement.

Raise Up disputed the notion that the money might not be spent on education and transportation, saying the amendment leaves no wiggle room because “the Constitution is binding on the Legislature.”

The coalition also said studies have shown that when New Jersey, Oregon, and Maryland raised taxes on top earners, that did not spark a mass exodus of wealthy residents.

Raise Up said the foundation’s analysis also ignores the economic benefits that would flow from improving the transportation and education systems.

“What does matter for building our economy is making sure we have a well-educated workforce and transportation infrastructure that works, and we do that by investing,” said Noah Berger, president of the left-leaning Massachusetts Budget and Policy Center, which has sided with Raise Up Massachusetts in the fight over the proposed tax.

The taxpayers foundation is widely respected on Beacon Hill, and its board includes executives of major corporations such as Vertex Pharmaceuticals, IBM, and Walmart.

But the group acknowledged its concerns are not likely to shift the outcome of Wednesday’s constitutional convention. The proposed amendment needs 50 votes to advance, and received 135 at the last convention, in May 2016. It must be approved by two constitutional conventions before voters can cast their ballots.

Governor Charlie Baker, a Republican, does not have to sign the measure to advance it to the ballot. But as he runs for reelection in 2018, he may have to navigate the swirling political debate surrounding it.

So far, he has not said if he supports or opposes the amendment. But he has generally sounded cool to it, saying the state must live within its means.

“Governor Baker does not support tax increases on our hard-working families, and was pleased to sign a balanced budget last year that reflects the administration’s priorities to create better communities, schools and jobs with no new taxes,” his spokeswoman said in a statement Monday.

Early polling suggests the amendment enjoys broad public support. A May 2016 survey by Suffolk University and The Boston Globe found 70 percent of voters supported the proposal.

Michael Levenson can be reached at mlevenson@globe.com. Follow him on Twitter @mlevenson.
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