The Supreme Judicial Court on Monday rejected a ballot question that would have raised the state income tax on Massachusetts’ highest earners and put that money into transportation and education, delivering a crushing defeat for progressive activists and organized labor and removing a volatile issue from this fall’s election.
In a 5-2 decision, the court sided with business groups that argued the proposal was unconstitutional. The measure would have imposed a higher income tax rate for personal earnings above $1 million, a levy that would have brought in an estimated $2 billion in new revenue next year.
The ruling will ricochet through Massachusetts politics.
Both Democratic gubernatorial hopefuls, Bob Massie and Jay Gonzalez, had strongly supported the proposed tax, and party officials had hoped the question would have boosted turnout among left-leaning voters in November. Now, some Democrats said, the court decision increases the urgency for the state Legislature to consider raising taxes or fees.
“We will need to be creative and take a hard look at potential revenues from new sources to address the very real challenges we face as a Commonwealth,” said outgoing Senate President Harriette L. Chandler. Boston Mayor Martin J. Walsh echoed those sentiments, saying, “Nobody ever wants to raise a tax but we have some serious infrastructure issues here in Boston and Massachusetts, whether it’s roads and bridges, whether it’s education.”
The court’s rejection robs Massachusetts Democrats of a weapon in this year’s gubernatorial campaign against Governor Charlie Baker, who for years declined to take a position on the ballot question.
“I’m not a big fan of raising taxes,” the Republican governor told reporters Monday, saying the court decision means “we have to move ahead, continue to invest in our Commonwealth, invest in our infrastructure, and invest in education as we have been, on terms that are consistent with the current tools that our available to us — which are pretty good.”
While lawmakers are empowered to create any number of new taxes, fees, and assessments, the state constitution prohibits them from imposing different tax rates on different income levels. The ballot question would have added a 4-percentage-point surcharge to personal income above $1 million. So the tax rate on the first $1 million in earnings would be at the current 5.1 percent, and then 9.1 percent on all income above that threshold.
The state Department of Revenue had estimated it would generate between $1.6 billion and $2.2 billion in additional collections in 2019.
Business groups opposing the measure argued in court that it was unlawful because it combined multiple subjects — spending on transportation and on education — that were not related. The state constitution requires such ballot measures to have subjects that are related or “mutually dependent.”
The majority of judges agreed. Associate Justice Frank M. Gaziano wrote that the question put voters who favored the tax increase but not earmarking funds in “the untenable position of choosing which issue to support” and which to disregard.
Gaziano also wrote the initiative would not let voters choose between transportation or education, if they didn’t want to spend the additional funds on both. Some commuters might not have children in schools, and so only would want the money spent on transportation, he said; some parents, on the other hand, might favor just education spending.
The business groups that challenged the question hailed the court’s decision.
“It’s a significant victory that reinforces the constitutional safeguards that were established 100 years ago that expressly forbid certain tactics to be used as an end run around the legislative process,” said Chris Anderson, the president of the Massachusetts High Technology Council.
The unions and activists behind the tax increase were stunned. They had spent several years building support and gathering signatures to get it on the ballot, and early polls found it was popular among voters.
“We are incredibly disappointed that a few wealthy corporate executives and their lobbyists brought this lawsuit that blocked the right of Massachusetts voters to amend our state’s constitution,” Raise Up Massachusetts said in a statement. “It is stunning that these business groups would overturn the will of the more than 157,000 voters who signed petitions to qualify the Fair Share Amendment for the ballot.”
Associate Justice Kimberly S. Budd, joined by Chief Justice Ralph D. Gants, dissented, saying that by rejecting the initiative “the court fundamentally interferes with the ability of the people to exercise the constitutionally granted legislative power.”
But retired Supreme Judicial Court judge Robert J. Cordy said the proponents probably overplayed their hand by pushing for too much in one question, rather than simply trying for an income tax surcharge for higher earners.
“It seemed to have been a very politically driven move to try to create something that would be appealing to the public but would have a graduated income tax at the core,” said Cordy, now a partner at the law firm of McDermott Will & Emery. “They clearly erred by trying to make it too sweet, by throwing in unrelated subjects.”
In recent years, with the prospect of what has been dubbed the “millionaires tax’’ on the ballot, legislators have avoided the passage of major tax hikes.
But they have been supportive of more narrow efforts to raise revenue for specific areas, such as millions of dollars worth of fees that, in different forms, both the House and Senate included in their budget proposals this year. (Lawmakers are still reconciling differences between the two chambers’ plans.)
Also, the court decision will likely influence the outcome of several other major political questions that could go before voters this year. Raise Up Massachusetts — a coalition of labor, religious, and community groups largely financed by union funds — was behind the tax proposal, as well as a separate ballot question to raise the minimum wage to $15 an hour and a third to mandate paid family and medical leave.
Meanwhile, the Retailers Association of Massachusetts is behind one to reduce the sales tax to 5 percent, which could lower state collections by $1 billion or more.
With one eye on the high court, state lawmakers have been negotiating legislative compromises on all three, a so-called “grand bargain” that would have kept those questions from going on the ballot.
House Speaker Robert A. DeLeo expressed dissatisfaction with the court’s opinion.
But, he said in a statement, “I understand the decision and remain committed to working toward a compromise solution on the remaining ballot proposals and continuing the House’s efforts on a policy agenda that will keep our Commonwealth moving in the right direction.”
There isn’t much time: The last day to file the final round of signatures for ballot questions with the state elections office is July 3.Globe correspondent Matt Stout contributed to this report. Reach Chesto at jon.chesto@ globe.com. Reach Miller at firstname.lastname@example.org.