Upcoming vote on tax proposal

Update: June 18, 2018

The SJC found this proposal unconstitutional and it will not appear on the ballot after all.

Last week, the legislature heard testimony on a voter initiative to raise the income tax on people earning over one million dollars.

The Proposal

The proposal, brought forth by a coalition of advocates for public services, reads 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. To ensure that this additional tax continues to apply only to the commonwealth’s highest income residents, this $1,000,000 (one million dollar) income level shall be adjusted annually to reflect any increases in the cost of living by the same method used for federal income tax brackets. This paragraph shall apply to all tax years beginning on or after January 1, 2019.

It’s worth picking that language apart carefully. As to the new tax:

  • It only applies to your income over $1,000,000 after all deductions and exemptions on your tax return.
  • That $1,000,000 will be adjusted for inflation to avoid bracket creep.

As to how the money can be used, it can only be used for:

  • quality public education and affordable public colleges and universities;
  • repair and maintenance of roads, bridges and public transportation.

In other words, it could be used for Chapter 70 aid for local schools and Chapter 90 aid for local roads — local government would benefit.  And it could also be used for state roads and public transit, but only for repair and maintenance, not new projects.  And it could be used to support public colleges — for example to reduce tuition.

The proposal is for a constitutional amendment, so, if approved by the voters, it could not be changed by the legislature.  No one needs to be concerned about a bait and switch.

The Process

The procedure for a constitutional amendment through the ballot initiative process is as follows:

  1. A petition signed by 10 original petitioners is filed with Secretary of state (done last year).
  2. The Attorney General reviews and approves the petition (done last year).
  3. The petitioners gather signatures adding up to 3% of the number of votes cast for Governor in the last election — 64,750 in this case (done last year).
  4. The legislature considers the petition — conducts hearing and possibly votes in a joint session on it.
  5. If the legislature does not bring the issue to a vote in the session or less than 50 legislators vote for it, it dies.
  6. If it gets more than 50 votes in two successive legislative session, then it goes in the ballot in 2018.
  7. The people vote for or against it in November 2018.

We are now in step 4 of the list above.  I will certainly vote for the petition as a legislator and will also speak up to make sure that we do not fail to take it up.  I absolutely feel that the people should have the chance to consider this carefully-crafted petition.

The Merits

I absolutely support increased spending on local education and on the maintenance of our transportation system.  In 17 years of state and local elected service, I have seen again and again that we are failing to do all that we should for our children, especially in poverty communities, and failing to maintain our infrastructure.  The proposal sets in stone that the funds raised can only be used for these purposes.

I have nothing but respect for those who are financially successful.  I feel that people in the private sector are, in general, rewarded for the contributions that they make and that most people earning over $1 million in a year (roughly the top 1/4 of 1 percent) have made huge contributions — whether as brain surgeons, as entertainers, as innovators or as executives.

But I do feel that  it takes not only hard work, discipline and creativity, but also good fortune and a supportive environment to make big contributions.  It is entirely appropriate for people who are fortunate enough to be able to make big contributions to pay proportionately more in taxes.

The only real reservation that I have about the proposal is whether it will send a discouraging message to high earners and influence their decisions to come to or remain in Massachusetts.  However, it seems modest enough that it is unlikely to do so.

The new top-earner rate will be 9%, roughly the same as or less than the top rate in states that we compete with. California, our main competitor for innovation talent, has a top rate of 13%.   New York and New Jersey, perhaps our top competitors for executive and financial talent are just under 9% and Connecticut is at 6.7%.  After federal taxes, the effective new top rate for high earners will be only roughly 5.5%.

The broadest and most rigorous study of the impact of taxation on mobility of the high earners (based on a huge database of federal tax returns) suggests that higher state income taxes do have an impact, but only a very modest impact.  Most people who are earning a lot of money are doing so in a particular business or institutional setting that they do not wish to leave.  The people most likely to move are young, low-income earners who need to find new opportunities.  Also, a lot of wealth tends eventually to go to Florida, a low tax state, but also a state with warm winter weather.

Bottom Line

Barring some finding of a fatal technical defect in the proposal — which I do not foresee — I am fully committed to vote to put the proposal on the ballot and ultimately, you the voters will decide its fate.  So, I am not so much asking for input as I often do.  But, I do think it is important for people to start thinking about the question and I will be very interested in your thoughts.

FAQ in the comments below:

Why is a constitutional amendment required for this?

The original constitutional amendment that authorized the income tax at “uniform rate” — that has been interpreted to bar a progressive income tax. The full text reads as follows:

Article XLIV.Full power and authority are hereby given and granted to the general court to impose and levy a tax on income in the manner hereinafter provided. Such tax may be at different rates upon income derived from different classes of property, but shall be levied at a uniform rate throughout the commonwealth upon incomes derived from the same class of property. The general court may tax income not derived from property at a lower rate than income derived from property, and may grant reasonable exemptions and abatements. Any class of property the income from which is taxed under the provisions of this article may be exempted from the imposition and levying of proportional and reasonable assessments, rates and taxes as at present authorized by the constitution. This article shall not be construed to limit the power of the general court to impose and levy reasonable duties and excises.

How much revenue will it generate?

The Department of Revenue has produced an estimate for this proposal. They estimate $1.9 billion in 2019 dollars. They have the full database of tax returns available to them, so they have a good idea. Of course, the estimate does depend on how the economy is doing and that is unpredictable. $1.5 billion seems like a safe low end estimate. Massbudget has summarized the DOR analysis here.

Published by Will Brownsberger

Will Brownsberger is State Senator from the Second Suffolk and Middlesex District.

100 replies on “Upcoming vote on tax proposal”

  1. I am of two minds about this proposed constitutional amendment.

    On the one hand, I have long believed that the Commonwealth isn’t taking in enough money in income tax revenue to be able to support the services that we want and need, and that a graduated income tax is the best way to fix that problem. So from that point of view, I am supportive of a constitutional amendment to enact a graduated income tax on high-income residents.

    On the other hand, I have two concerns with the structure of the proposed amendment:

    1. There should be more than two tax brackets. People who make five million, or ten million, or a hundred million dollars in a year can afford to pay a lot more than 9% in taxes, and they should. I will resist the urge to expound at length about why that is so. The people who agree with me don’t need convincing, and the people who don’t probably won’t be convinced by anything I could say.

    2. Education and transportation are not the only critical services provided by our state government, nor are they the only critical services that are in dire need of increased funding. I am highly uncomfortable with passing a constitutional amendment which ties the state’s hands from addressing future needs, as this one does. We already did that once when our state constitution prohibited a graduated income tax in the first place; if we’re going to undo that, then we should undo it for real, all the way. The increased revenue should go into the general fund for any purpose, not be earmarked.

    On the gripping hand, however, I understand that the legislature has already tried (three times, I think?) to amend the state constitution to allow for a graudated income tax, and the voters have rejected all three attempts. I assume that the reason why this amendment is worded so simply — hence adding only a single tax bracket — and limited to education in transportation, is that the sponsors of the referendum believe that this language is all that they will be able to convince enough voters to ratify. If my assumption is correct, then I will support this referendum even though I don’t think it goes far enough.

  2. Thank you for voting to put the proposal on the ballot. I hope it (and other ways to raise the money that our state needs to fund world-class schools, transportation, and other public services) will have your full support.

    1. 1. Past experience in Massachusetts and experience in other states does not support that concern.

      2. Massachusetts, like many other states, requires income tax to be paid for income earned in Massachusetts, even for people whose legal residence is elsewhere, so people working in Massachusetts can’t use legal dodges to get out of paying their fair share of Massachusetts income taxes.

  3. Thank you for your intention to support this amendment. We face a problem of chronic under-investment in our schools and our infrastructure, which gets worse each round of cuts. The Fair Share amendment will provide the resources to start investing in our communities and our future again.

    Those who make $1+ million were only able to achieve their wealth because of the foundation that the state built for them: schools that create an educated workforce and an infrastructure that facilitates the movement of goods and services. They have benefited the most and should contribute more.

    The Fair Share amendment also offers an opportunity to help reduce the growing inequality that is a problem in our state (especially the Boston region) and throughout the country.

  4. Of course, I’m 100% behind this measure. We middle class and poor create the wealth of millionaires. They use our roads, bridges, police, fire rescue, courts and laws. They owe this country more than any of us because they’ve gotten more out of it than any of us.

  5. Come on! Really?!
    We know you can’t honestly promise that the new taxes will be appropriated to “quality public education and affordable public colleges and universities; repair and maintenance of roads, bridges and public transportation”

    Please don’t try to feed me that [email protected]#$%!

  6. I am a high earner and support higher MA taxes on high earners. Your assessment that raising the tax would not affect my mobility is correct. I do know some other people who live in NH and work in MA, but they are already there. Those of us who live in MA are unlikely to leave.

    That much said, I would prefer if the bill allowed for more than educational support and road infrastructure maintenance. I would like to support new public transportation projects, pervious pavement projects, research into addiction recovery, etc. I am sorry that the bill is so limited and I don’t think that it adequately foresees future necessary expenditures. Why limit spending at all?

    Furthermore, perhaps because I am not familiar with the MA state constitution, but if the proposed graduated tax is to contain only two brackets, that seems inadequate (in MA, is it really necessary to pass a CONSTITUTIONAL amendment to change tax rates? That seems a rather severe threshold. I’d actually try to change *that* to allow more flexibility).

    1. It requires a constitutional amendment to have more than one tax rate. When the constitution was amended to authorize an income tax, they did so with a requirement that rates be uniform.

    2. As I noted — and Will confirmed — in my earlier comment, the reason why the proposed amendment limits what the money is allowed to be used for is because otherwise people won’t vote for it.

      The Legislature recognizes the need for a graduated income tax. They’ve tried — three previous times, I believe — to enact a constitutional amendment allowing for a graduated income tax. All three times, the people voted the amendment down when it went to referendum.

      This time, they’re trying to prevent that from happening by making the amendment more palatable and more difficult to oppose. Given the state of our transportation infrastructure and of public education in the Commonwealth, it will be difficult for people to oppose this amendment without looking bad.

      It’s a clever strategy. I hope it works, because we need this.

  7. Will, only questions I have are:

    Can the law be written where as if the budgets for the assigned decreases, the amount received decreases. My concern is we will have an influx of money which can only be used for these cases but the underlying funds keep g moving out and being replaced by this tax.

    Also, what is the estimated income the state would receive?

    Thanms.

    1. You are right that while the funds from the tax could only be used for the specified purposes, the application of those funds might free up other funds for spending for other things. That is a fair point.

      The amount raised is between $1 and $2 billion. (The total state budget is about $38 billion).

  8. The Ideal would be everyone pays the same amount of taxes end of story. 10% or whatever that may be. Unfortunately with tax write offs and the wealth generated by high income earners they have the wealth to put into ways to figure out how to pay less in taxes with loop holes etc.

    I don’t think this one vote will be big either way in the big picture. I think tax reform for everyone (abolishing the IRS) and Simplifying taxes so everyone pays their fair share will solve the problem.

    Until then every individual will feel like they are being attacked. Either the poor feel like they don’t have a chance or the rich feel like they’re being punished.

    I support which ever way you vote on the issue. I’d lean towards a no vote if it was up to me.

    The money is great but it might push the money right out of the state. Similar to the situation with offshore taxes by the multinationals. Trillions just offshore because our taxes are too high to bring them home.

    By having the appropriate fair taxes for everyone it would allow that money in. So similar to this vote I think that it would push the money out of MA eventually long term.

    1. The Ideal would be everyone pays the same amount of taxes end of story. 10% or whatever that may be.

      No, that’s not the ideal at all. Flat taxes are by definition regressive and impose an undue burden on low-income taxpayers.

  9. Of course it will only be used for road and bridge repair and of course public college tuition reduction-
    would your state government lie to you?

    1. Of course, any funds raised through the tax enacted by this amendment, which then go to transportation and education, will free up other funds in the general fund to go to other purposes. Money is fungible.

      So, yes, I agree with others who have pointed out that the amendment’s limitation on how the money can be used is not terribly meaningful. As noted in other comments, it’s a political strategy to get the amendment passed.

  10. This sounds very sensible to me and the dedication to the two areas might free up some funds for the other important projects, though I know needs have a way of expanding to meet funds.
    Mandated philanthropy in a way. Worth giving it a try.

  11. Tax sounds fine.
    However using it for roads when we already pay taxes for that seems strange.

    Now for universities etc. Lets gets the salaries and perks straightened up otherwise your throwing money to the wind.

    If your a professor earning more than 100k you should be teaching 5 days a week. Its been known that many have 2 classes a week and this needs to be reigned in.

    I also do not trust that those responsible for the distribution of this money and those incharge of spending it will do so wisely. Time and time again state agencies have proved they are not trust worthy to carry this out. Except for fish and game and few others.

    So tax yes.. but big NO D- on how its handled and being held accountable of spending, and cleanig up the waste in the areas this money is going too.

  12. Interesting proposal. Need more time to mull over and digest. On another topic, I prepared a long (four paragraphs discussion of the heroin/overdoes problem or epidemic that you highlighted in a prior email. I am not certain whether your office EVER received it or not. Would appreciate learning from one of your aides if your office ever received it. I can reconstruct it, if needed. thanks And glad that Boston, etc., dodged a weather bullet over the weekend. Jim and I are wintering in FL – one of the opportunities of senior status.

  13. Dear Will,

    Do we have any idea how much this new tax would bring to the state’s coffers? If it is substantial, and would do everything that we want it to do then why not. But are there estimates?

    Nayla

    1. From the Globe:

      “About 14,000 Massachusetts taxpayers reported taxable income of $1 million or more in 2013, the last year for which a breakdown is available. Many of them were clustered in Boston and wealthy suburbs such as Newton, Wellesley, and Weston”
      By David Scharfenberg GLOBE STAFF JULY 23, 2015

      Assuming these people [[only]] make $1,000,000, the tax impact is minimally $560,000,000 (half a billion dollars) per year. Clearly there are people who will make more than this amount and since the proposal is for $1m AGI, some of these people may not qualify, so this is just an estimate.

      1. Remember, the 4% tax would be only on the income over $1 million, not their entire income. Your math only works if each of those 14,000 taxpayers had at least $2 million in income — $1 million to hit the threshold and $1 million of income taxed at the extra 4%. In reality, many of these 14,000 likely make “only” a hundred thousand or two over the $1 million limit. Someone making $1.2m, would pay $8000 more in taxes ($200k x 4%), not $48,000 ($1.2m x 4%). If we assume that many of the 14,000 are clustered near $1 million, the amount raised will be nowhere near $500 million per year.

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