I’ve been struggling with Q. #1, which calls for a new four percent tax on income over a million dollars, to be spent on education and transportation. Initially it sounded like a terrific idea – providing a substantial dedicated stream of financial support for much-needed education and transportation priorities to supplement annual budgets. Payment for this would only hit the ultra-rich, whose accountants and attorneys find so many ways for them to avoid taxes. However, on closer inspection, this proposed Constitutional amendment is deeply flawed.
My biggest objection is that the designated proceeds, an estimated $2 billion a year, are “subject to legislative appropriation.” Advocates for Q. 1 misleadingly claim in their ads that the money can only be used for education and transportation. In 2019, when the legislature deliberated about the measure, an amendment to ensure the money went for those purposes was overwhelmingly defeated in both houses. In her role as Attorney General, Maura Healey issued an opinion approving the measure for this year’s ballot, based in part on the very fact that the legislature retains discretion over spending choices.
“Retains discretion?” How much discretion do you want to give the legislature on this matter? In 1998, Massachusetts got a major settlement from the tobacco industry, the proceeds to go to a proven Smoking Cessation campaign. The Great and General Court diverted those funds when lawmakers needed money elsewhere.
Even if the legislature did apply the new surtax revenues to education and transportation, would it be additive? That is, would it be in addition to the normally budgeted amount for the designated purposes? Lawmakers could, you know, give the new revenues to education and transportation, complying with the intent of the law, while simultaneously diverting comparable amounts away from transportation and education in other line items.
I have little concern with the economic impact of the new tax on the individuals who annually generate taxable income in excess of a million dollars. The new tax would barely make a dent in their lifestyles while helping the larger community. If I were in their shoes, I’d be glad to pay my fair share.
I am, however, concerned about the hit on the one-time sale of homes, small businesses and farms. Those sales would count as spiked income in just that one year and could seriously hurt sellers who have viewed the long-anticipated proceeds of these sales as a nest egg on which to retire. That equity is likely the largest share of their assets and has been the foundation of their financial planning for years. And it’s not just homeowners. Sole proprietorships and small businesses like S-corps file under the personal income tax code and could get clobbered.
The Revenue Department projects the new tax would raise about $2 billion, but this number is squirrelly. One third would come from wages and salaries, and the rest would come from interest, dividends and capital gains, as volatile as the economic cycle. Only a quarter of the revenues would come from those regularly earning more than a million dollars.
Some concerns have been raised that this new tax on those who regularly earn $1 million or more would drive wealthy business types out of Massachusetts. It’s true that some wealthy retirees depart for Florida to escape Massachusetts’ estate tax (a subject for another time.) But I’m not convinced that this argument, traditionally raised to oppose tax increases, holds water. Business executives have long valued Massachusetts’ educated workforce, cultural and recreational offerings, medical services and academic centers. I don’t think they’ll be so quick to leave because of that extra four percent. It’s the one-time cost to homeowners and small businesses that make this proposal more troublesome.
Significantly, the new four percent surtax would not be a statute but would be embedded in the state’s Constitution. If there were clear unintended or underestimated consequences, thoughtful legislators who might want to amend the language would find it difficult to do so because It can’t just be changed by the normal legislative process. It would require a Constitutional amendment, taking years to alter the language. And that would not help those hurt in the early years of its implementation.
Question One is a good idea, but the devil is in the details. It’s too blunt an instrument to serve an otherwise noble purpose and is worth a resounding – sorry, friends – NO.
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6 thoughts on “NO on #1 – Great concept, but too flawed”
Sheila, Thank you as always for your input. I agree with you that the uber-wealthy manage not to pay their fair share and should be required to do so. However, that Mass. Budget Center’s analysis doesn’t differentiate those uber-wealthy from those receiving a one-time income spike from the sale of a business (S-corps filings, for example) or a home in Greater Boston that has been lived in for many decades with dramatic appreciation. That equity has been the basis on which retirement plans have been built. If there were a carve-out excluding small business owners’ and homeowners’ one-time windfall, I’d be more sympathetic to the ballot question.
Disagree! Given Mass has in recent decades six times defeated efforts to make income tax somewhat progressive, this Question is a winner.
Yes, the question includes non-binding sales language about education and transportation. The sales language earned substantial funding for the question from Teacher’s Unions and may be key to its success. Lots of taxes get promoted with non-binding sales language Thankfully, the constitution prohibits dedicated taxes; they are a disaster. Imagine having to pass a constitutional amendment to fund recovering from an unanticipated disaster.
As for its impact, very few will be impacted. How many have a profit of more than $1 million on the sale of a residence? And for the odd family that has a profit of $2 million on the sale of residence, it is all of $40,00 tax. I think works out to less than 1% of the population. It may cramp that 4th vacation of the year.
This is a great opportunity.
VOTE YES ON ALL 4 QUESTIONS!
The people whom I have spoken with are not as cavalier about a $40,000 hit, especially Subchapter S small business owners, who have plans to cash out years of growing their small businesses as the major source for their retirement years. You make some good points I wrestled with. (Jim comes down on your side.) Perhaps in the end you are more trusting of our legislators than am I. It’s a complex issue and your remark about having to give up that 4th vacation oversimplifies the debate.
Sheila, Thanks for your comment. Perhaps we just have different definitions of who is a “millionaire” and different levels of faith in the legislature. All best, Margie
Hi Marjorie: I suspect our opinions about the legislature do not differ. We are dependent on a system that assumes all our elected representatives have equal opportunities to represent the views of the people they represent. And we know that isn’t the case. I give great credit to many legislators who labor continually to seek improvements in our laws, but fight a system that distributes power in a flawed manner. But, it is definitely time to chip away at a tax system that taxes millionaires and billionaries at the same rates as teachers, child care workers, and blue collar labor. Best Regards, Sheila
I usualy feel you’ve done proper research, but on the issue of the millionaires’s tax, I feel you represent a very small number of our state’s residents. See the Mass. Budget Center’s careful analysis of how many individuals would be subject to the tax after selling a home and taking current legal deductions. Likewise, see their research on the number of small businesses that can sell for over a million clear after their legal deductions.