Update: April 4, 2022
The SJC found the proposal unconstitutional and it did not appear on the ballot in 2018, but the legislature voted on it by a different process and it will now appear on the ballot in November 2022.
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.
- A petition signed by 10 original petitioners is filed with Secretary of state (done last year).
- The Attorney General reviews and approves the petition (done last year).
- 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).
- The legislature considers the petition — conducts hearing and possibly votes in a joint session on it.
- If the legislature does not bring the issue to a vote in the session or less than 50 legislators vote for it, it dies.
- If it gets more than 50 votes in two successive legislative session, then it goes in the ballot in 2018.
- 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.
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.
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.