Today the Massachusetts Supreme Judicial Court handed down a decision with huge financial consequences. It ruled unconstitutional a ballot proposal to impose a surtax on incomes over $1 million to be used for education and transportation. Polling on this proposition indicated that it was very likely to pass on the November 2018 ballot. So, in effect, the SJC blocked the surtax and the many spending proposals based on the surtax.
The proposition
Under the Massachusetts constitution, the state income tax must be flat — it must apply the same rate regardless of income level. This is in contrast to the federal income tax which is progressive — at higher income levels the federal income tax rate is higher.
To raise more money for public purposes and to serve a sense of justice, there have been repeated attempts to amend the state constitution to allow for progressive income taxation. In the current effort, the proposition was framed as follows:
To provide the resources for quality public education and affordable public colleges and universities, and for the repair and maintenance of roads, bridges and public transportation, all revenues received in accordance with this paragraph shall be expended, subject to appropriation, only for these purposes. In addition to the taxes on income otherwise authorized under this Article, there shall be an additional tax of 4 percent on that portion of annual taxable income in excess of $1,000,000 (one million dollars) reported on any return related to those taxes. . . .
The proposition effectively combines three ideas:
- Adding a 4% surcharge on incomes over $1 million.
- Dedicating funds to transportation.
- Dedicating funds to education.
I supported this proposition . Like the drafters of the proposal, I felt that the combination would be appealing to a broad constituency, and, in fact, it was. As of the end of last month, 77% of voters had a positive view of it.
The SJC’s concern
The proposition was brought forth as an initiative petition. Article 48 of the constitution, adopted 100 years ago, governs the submission of ballot questions to the people by initiative petition. The initiative process under Article 48 operates within fairly strict boundaries. For example, a petition cannot impair basic civil rights or make specific appropriations of funds. Additionally, Article 48 requires that propositions include subjects “which are related or which are mutually dependent.”
The SJC concluded that the three parts of the question were not adequately “related.” At first blush, this seems like an extremely abstract consideration. Indeed, the court’s opinion devotes a lengthy paragraph replete with citations to the meaning of the word “or”. At a more practical level, the court explained that “a voter, unlike a legislator, has no opportunity to modify, amend, or negotiate the sections of law proposed by popular initiative.” Voters should not be put in the position of voting for a package in which they like some things but not others.
While I’m deeply disappointed with the court’s decision, I understand the point that the court makes. Voters could react differently to the three ideas in the proposal. Some voters might be enthusiastic about raising income taxes on the wealthy for justice reasons, but might want to apply the proceeds to reducing other taxes or to providing higher earned income tax credits for low earners. Some voters might want to spend more on education, but not so much on transportation. Right or wrong, the majority opinion of the court is the last word.
The Impact
It has been estimated that the proposition would have raised $2 billion per year — a game changing sum in a $40 billion budget. The initiative process is a four year cycle. For the past couple of years, I personally have frequently embraced the proposition as the most realistic way to meet unmet needs for education and transportation. For now, we are going to have to live within our limited means. We may be able to identify alternative funding sources, but the prospect of a progressive state income tax is once again far in the improbable future.
I am a strong supporter of each of the three initiatives supported by this ballet question, but I am also glad that the SJC enforced the restrictions on ballet questions.
In fact, I’d love to have Will comment on whether the drafters of this ballet question knew that they were “pushing the envelope” with the wording of the ballet, and the complex consequences the ballet would have had if allowed and approved. On the face of it, the SJC’s objection doesn’t look like much of a stretch when you understand the law and then read the ballet question!
I’m sure they did not know they were pushing the envelope. There was a good argument that the question would be fine. I remember speaking with lawyers for the group who were very confident. That confidence began to wane after the oral argument.
Thanks for mentioning that. I see the oral arguments are available here and hope they’ll further improve my understanding:
http://www.suffolk.edu/sjc/pop.php?csnum=SJC_12422
Thank you for this helpful summary!
So did it seem the court would accept a proposal that simply imposes the surtax without specifying where the money would go?
Certainly. There is no problem with a surtax or progressive income tax proposal per se.
So let’s go for that, even if it is 4 years away. Long overdue and apparently something that the public supports. Rather than including education and transportation in the proposition itself could it be explicit that this would be the intension? Not legally binding but something that could influence the way the funds would finally be invested.
Charlie Baker’s impact on the court through appointments comes to the fore. I think the time is ripe for another attempt at a progressive income tax. It has been over twenty years since the last attempt, which came at a time when trickle down economics still had a shred of believability. That’s gone!
The court’s ruling is utter drivel. I’m tired of having to pretend the idiot defenders of the rich are making “serious” points. They’re not.
Time to change the constitutional introduce serious progressive taxation. The legislature has a huge role to play in getting this rolling.
Meanwhile, retailers helped lead the fight to kill this initiative. I think immediately hiking the sales tax to 9% is appropriate.
Unfortunately, it will be at least 4 years before a new progressive income tax question can get on the ballot.
You will not like this idea, however I’ll send it anyway.
If all the OVERPAID politicians from Governor on down, cut their salaries and perks in half, we’d have lots of money for services without raising more taxes.
I’m sure none of you would be hurting at all and we the people who you serve, would be in much better shape.
True that compensation is most of the budget. But most of that compensation is not politicians. It’s mostly workers . . . FWIW.
Another’s comment said it better…
How about the legislature saving money instead? After all, the majority had no difficulty giving themselves a $12 to $18M raise last year.
Thatcher said it best: “The problem with socialism is that you eventually run out of other people’s money.”
I don’t know if this is across the board, but the state worker I know is only getting a 1% increase this year. These are not competitive salaries with industry to start with. I guess you stay in because (if the people and their representatives don’t turn on you) you should get some kind of “old fashioned” pension. And maybe you have a union (though not apparently a union that can keep you up with the rate of inflation), another rare thing these days. But the bulk of state workers are not living high off the hog. Don’t fool yourself on that score.
If a surtax on the wealthy would have otherwise been allowable without dedicating the funds, why can’t the legislature enact this?
Our constitution forbids a special tax on higher level. So, we would need to amend it. The process for amending it requires votes by two successive legislatures and then a vote of the people.
In this case, we had the two successive legislative votes already, but the court found that the question posed to the people was not properly framed.
Why was the question not properly framed? Whose fault was that? The courts did their job.
People often suggest taxing the rich when there’s a shortfall in budgets. I’m not opposed, but I wonder what the limit is. And what do the rich people think?
So we need to go back to the drawing boards and find a way to introduce a graduated income tax. The flat tax is regressive, I assume promoted by the wealthy who called the shots at the time. The wealthy are doing just fine these days. Low- and middle-income people are not. We need a change.
A constitutional amendment to allow a graduated income tax has failed repeatedly to pass. I think it’s 5 times now. It’s silly to imagine things would change. I suspect most voters did not trust the Legislature not to raise the taxes quite high and not to affect incomes that are comparatively low.
I think the ballot question approach is flawed unless you restrict the specific vote to citizens who actually pay taxes. They don’t need to be rich they just need to pay into the system and have skin in the game. Otherwise, who wouldn’t vote to take money away from someone else? They would vote to fund specific project or just about anything without it coming out of their pockets. Of the 77% of voters polling for it, what % of the tax base do they make up? More importantly, the ones affected by the taxes are the most mobile, so what happens when they set up shop somewhere else along with the jobs they create?
It took a trip down to St Martin a few years back for me to really see the need for a tax base with the lack of police and decrepit roads. However, I see tax dollars squandered time and time again. How many construction sites have you passed by where the workers are just hanging out or there are just as many supervisors as there are workers due to some union rules? MassDOT does “emergency” repairs on the same spots on the Bowker frequently so doesn’t that suggest a design / execution flaw in there somewhere?
A more radical idea for raising taxes, if truly necessary, is in exchange for higher taxes, people could earmark a portion of their taxes for specific activities (say 20%) be it safety, infrastructures, schools etc. and it could not be reappropriated by the politicians for pet projects. This way people can really vote with their dollars on where they want to see value. That would be more palatable than having people without skin in the game depriving you of your hard earned assets.
Glad the SJC squashed this. So called rich people already pay more taxes than others, that’s how a percentage works, the more you earn, the more you pay. Progressive is just greed run amok! Of course the majority wants someone else to pay, and at a higher PERCENTAGE the more you earn. Think about the logical conclusion to that, at some point you are taxed at 100%! Its just insanity! Stop punishing those who work hard, and take a good look at spending, especially state salaries and pensions!
Dave; although I am nowhere near the millionaire bracket many working people who are taxed at, let’s say 25% and work a salaried job and perhaps a small business or 1099 taxed part time jobs pay an additional 20% fed and state tax…the point that you make that millionaires work hard and contribute more is a blind spot that I have argued with an assortment of upper income friends, family and colleagues and implies that you feel that people at lower income levels do not work hard or contribute to the commonweal and do not pay a proportionally higher tax burden with less discretionary income then the more financially blessed.
Alfred; Never have I said people who earn less do not work hard, in fact in many and possibly most cases they work harder! The point I make is, a flat percentage means those who earn more pay more already – raising the percentage as you go up just punishes those who earn more, and is unfair. A better system would be to scrap the entire income tax and go with a sales tax with prebate (to make it progressive and protect the low end), like the FairTax – but it would need to be national.
Despite supporting the initiative personally, after some reflection I am starting to agree with the court. I do think the collection of revenue and the decision of where to spend it are two different things, and rightfully should be considered separately.
Furthermore, the language seems ripe for budgetary shell games. This specific revenue goes to education and transportation, but that just frees up other unrestricted revenue that was already funding these things. Given the continued growth in MA Health spending, I’m not convinced that over the long term this amendment would really lead to sustained increases in education and infrastructure spending.
The roads in Boston and out lying towns are in such bad shape, one would think the State was in collusion with the car repair establishments.
I’M old enough to remember that when the lottery first came out much of the income was slated for the arts. Now it’s less than half of one percent. It would be wonderful to believe in our states legislatures again. Thank You John Metz Clark
I am sorry we did not even get a chance to vote. Thank you for your work on this initiative.
I enjoyed your analysis, Will. Thank you.
There are revenue workarounds to achieve the revenue needs. Higher ed is a good example. Align the burdens with the beneficiaries. A better educated workforce is more productive so the cost is recouped through income tax. The beneficiaries are business, so they should be burdened with the cost of higher ed they should be paying the tuition, not student loans. For primary education, forget charter schools and vouchers, The instructional costs (public dollars for public schools) should be placed on the parents who will get re-reimbursed by the state on a means tested scale.(low income %100 upper income something less).
I am very pleased with SJC’s decision. I understand that the majority of WBUR poll participants maybe disappointed because their dreams of a progressive state income tax have been nixed. Those pushing for it know that their meager income will not be affected.
How about the legislature saving money instead? After all, the majority had no difficulty giving themselves a $12 to $18M raise last year.
Thatcher said it best: “The problem with socialism is that you eventually run out of other people’s money.”
How frustrating! I hope we can start a new ballot initiative ASAP. Meanwhile our very wealthy state with its booming economy will soon hit a wall as obsolete public transportation infrastructure fails to support that economy. And while our private universities supply a highly educated workforce, the gap between private and public keeps widening, and with it a disastrous inequality of wealth and opportunity. So OK, SJC, these aren’t exactly one thing, but they are closely interrelated–interdependent– in the state budget. There was a time when our SJC was a visionary body, not a pedantic one, aloof from urgent public interest.
How upsetting !!! The will of the people can be denied. I heard this ballot initiative had a lot of public support. Perhaps it can be brought up again in a different manner. Keep fighting for our needs!!!
Massachusetts has a spending problem, not an income problem. For example, the generous public pensions, health care, and job security are not typically given to people in the private sector.
Also waste, fraud, and abuse contnue. For example, Massachusetts spent over $1 billion on the website for health care when Obamacare was introduced, yet no one was ever held accountable.
Thanks, Will
I haven’t finished Justice Budd’s dissent yet, but I think the majority probably made the right call in keeping a narrow interpretation of related or mutually dependent subjects.
With that said, pretending that income tax is actually flat is a fiction. For example, I can take deductions because I’m self-employed that advantage me at the expense of wage earners. Why can’t the legislature raise the flat rate and then provide additional credits and/or deductions that lessen the impact of the higher rate solely on those who cannot afford to pay the higher rate?
That is a very legitimate approach, one that I have developed in the past. It should be on the table in our discussion of options.
Will,
Thanks for this excellent summary of the issue. I worked hard collecting signatures for the petition so am disappointed that it didn’t pass muster.
What would you think of a campaign to enlist the state’s millionaires to voluntarily commit to paying the higher state tax rate the law offers – 5.85% instead of the required 5.1%.
If the Governor, the Mayor and all the bigwigs supported the idea, if Jack Connors’ ad agency gave it full play, John Henry at the Globe, John Fish, etc. etc. said “I’m in” they could make it a club others might be proud to join.
I only gave at 5.85% once in 2009 when the federal government allowed me to forego paying income tax on a required minimum distribution from my IRAs. There needs to be an incentive; maybe joining the hoi-polloi would be it.
What do you think?
Dick Terry
Nice idea
Will, Howie Carr has a remarkably good explanation of the problem with this failed proposition:
http://www.bostonherald.com/news/columnists/howie_carr/2018/06/howie_carr_working_stiffs_catch_break_as_court_nixes_millionaire
The solution: reduce spending. Concentrate on the whopping $7.1 Billion education allotted, that takes 17.6% of the overall budget (where transportation is only about 1.3%). Tell us where we rank with other states (and countries) on a cost per student benchmark and I’m sure we could identify many effective ways to trim excess costs.
Howie Carr is hardly a source of facts.One reads him for amusement. If you want a reasoned argument against this idea, read the editorial page of today’s Boston Globe, “Millionaires tax was a nonstarter by Rachelle G. Cohen who now writes for the Globe and is a contributing member of its editorial board, but served for a long time as editorial page editor for the Boston Herald. Mr.Carr is a Radio personality, and opinion columnist, not a Journalist.
Yes it is a shame this did not pass muster with the SJC. We may eventually be forced to find funding necessary for transportation and education by a broad based tax increase unless other sources of income, can be found, unlikely in my opinion. Better management of funds spent in these categories can really only go so far. The cost of everything goes up, rarely, if ever, does it go down.
I would have voted for this proposition even though I am dubious about earmarks. We have a lot of compelling fiscal needs in MA. Now that it has been tossed out, we need to address where we will find revenue to support state programs.
We could begin with increasing the gas tax in order to support our infrastructure. This would have a beneficial effect on air quality and greenhouse gas emissions.
We do not need a new tax framework like a vehicle miles travel tax.
Will,
The subject line of your email on this read:
“Education and transportation funding will have to wait”
You should have thought about that a bit before hitting send.
The economy and job market is doing very well right now. Given that, state tax revenues should be doing very well. Further, education and transportation should be the states top priorities. You can complete math here but I think not getting this additional tax revenue is a lame excuse for saying what you did.
I’ve mentioned this before but on a per mile basis, MA ranks in the top 5 for road spending in the country, yet our roads are abysmal. I really doubt a lack of tax revenue is the problem there.
The public education system in MA, overall, is very good. However, the way we allocate funding can certainly be reconsidered. If we do need more funding there, we need to consider what else the state spends money on (start with state police overtime).
I’m not necessarily against a stepped income tax, but I have a difficult time believing a lack of tax revenue is the issue here.
I agree that management focus is always the most important resource. But, truly, I do believe that there are many areas that we really should be spending more and transportation and education are at the top of that list.
“It has been estimated that the proposition would have raised $2 billion per year.”
Suppose the people from whom you extract this $2B don’t turn out to be as clueless as you think or hope they are?
Imagining you can count on the $2B revenue stream forever more, you grind it the state budget where it immediately disappears into the pension blackhole. (Who’s kidding whom? The only sense the $2B is for education and transportation is to feed underfunded pensions in these two sectors.) The clueless wakeup, get a clue, and follow the pension patriots to Florida, Texas, and Arizona.
Now what?
You don’t have the $2B revenue stream but you now have a $2B entitlement you have to fund, year after year. And what’s more, the $2B doesn’t even stay in the state economy. It flows into the state economies of Florida, Texas, and Arizona where it improves their education and transportation systems.
Both Connecticut and New Jersey—both states controlled end-to-end by Democrats—tried the millionaire tax gambit and this is exactly what happened. And both states are now trying to retrench but as with all entitlements, once given they are impossible to claw back. What doesn’t come back however are the taxpayers that moved away.
Will, I think the SJC saved your/our bacon.
I disagree. My take was that this level of taxation was not so exaggerated that it would drive people off. But I do agree that there is a level which can be harmful. It is always a judgment call and a controversy as to what the level is. I also disagree as to your assessment of how the money would be used. There is a lot more work that we could be doing in both of these areas that would be very valuable.
Prior tax increases that earmarked funds for certain project categories were found to be unenforceable in the past, nor could the legislature be induced to provide an explanation of where the additional tax generated funds were applied. I particularly remember this in re: increased cigarette tax with funds to be applied to tobacco education–NOT! As both a smoker and a worker taxpayer I felt betrayed. As a worker I remind you to deport illegal aliens and support immigrants.
It is just too easy for politicians to take other peoples money and say that it was alright because 77% of the people approved of it, yet they forget that these 77% are not the ones being taxed by the bill. Why not cut some of the useless programs and other waste in government if you need more money? Corporations do it all of the time and it is time for the state to do it as well.
We will absolutely keep struggling to do that.
There is waste in every big operation. It is the constant challenge of management, whether public or private, to minimize it while accomplishing the organizational mission. Certainly true in the military.
That agreed, I will say, I believe that many state agencies are badly under-resourced to the point where they cannot achieve their stated mission at scale.
https://www.bostonglobe.com/metro/massachusetts/2018/06/23/despite-claims-reform-all-overtime-all-time-these-costly-state-police-postings/6b4LAsNYJnTMrCPhS3toRL/story.html?s_campaign=breakingnews:newsletter
your tax dollars at work.
Case in point to John’s comment below. We have to keep working.
Please don’t be disappointed.
Internet purchases may be taxed now.
A tax bonanza awaits!
The “Fair share Tax” is just another name for the old “grad tax.”
Note that new jersey’s “Millionaire. Tax” became the $500 million tax.” There aren’ enough millionaires to collect billions.
Many in Belmont would be millionaires if they sold their homes. But just for a year?
Then there is a declining revenue source just like the situation with tobacco taxes. Smoking has gone way down.
No, u
Come on Will, this proposal would only have created a graduated income tax, which then could be adjusted and segmented by the legislature as they then deemed fit.
The folks that were FOR this proposal were lying when they claimed the new monies would go specifically to education and transportation. That control would still have been up to the legislature to divvy up as they seem fit. Right?
It couldn’t really be adjusted. It set the rate into the constitution.
Also, the money raised really would have to be dedicated to education and transportation.
You are right in the sense that the new revenue might allow existing revenue sources to be devoted to other areas and that is hard to control, but the legislature would have felt an obligation to follow the spirit of the measure and actually increase funding for education and transportation.