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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