Earlier this month, in a joint session of
the Massachusetts House and Senate, the graduated income tax, also known as the
“Millionaire Tax,” was voted to be sent to the November 2018 state ballot. Due
to the many concerns that I had, I voted against this economic proposal. Some
of my concerns surrounded the issues of there being no safeguard to ensure the
collected revenue will be allocated to increased support for education and
transportation as intended. Additionally, it will hurt our small-business
economy resulting in job loss. Not only that, it scares potential employers
from relocating to Massachusetts. And lastly, the tax flight theory
demonstrates the increased out-of-state migration due to the implementation of
a graduated income tax.
Currently, Massachusetts assesses residents’
personal income uniformly at a “flat tax” rate of 5.1 percent, and short-term
capital gains at 12 percent. This proposal would amend the state constitution,
creating a two-tier tax system that imposes an additional 4 percent surtax on
all income in excess of $1 million, effective Jan. 1, 2019, and the revenues
would be “allotted” to transportation and education funding. The state
constitution explicitly prohibits any amendment that “makes a specific
appropriation of money.” However, the proposal attempts to circumvent this
limitation by designating the money collected as “subject to appropriation” by
the Legislature. Therefore, any and all collected revenue will be placed in the
general fund, where its allocation is at the Legislature’s discretion.
During last year’s Constitutional
Convention, the House Republican Caucus tried unsuccessfully to amend the
proposal to ensure that any funds raised through the surtax would be used “in
addition to” rather than “in lieu of” money currently spent on education and
transportation, however, because the ballot proposal was not subject to further
amendment this year, I expressed my concern that there are no safeguards in
place to certify that the funds are appropriately being allocated to education
and funding.
In other words, the funds collected could be
used to replace existing revenues spent in those areas, resulting in no net
spending increase on transportation or education. A comparable situation was
the national tobacco settlement money: in lieu of spending the money
exclusively on smoking cessation and health-related programs, only a portion of
it was spent on those areas.
Many prominent business groups consider the
tax proposal to be anti-competitive, indicating that its impact on small
businesses and job creation would be detrimental. Despite the populist label of
the Millionaire Tax, the main reason to oppose this bill is that it could harm
our economy by waging class warfare on our small businesses and job providers,
which is a war we all lose. Furthermore, the Massachusetts High Technology
Council warned against it, stating that it “could cause irreparable harm to the
state’s innovation economy.” Major business groups, such as the Massachusetts
Taxpayers Foundation, Associated Industries of Massachusetts and the
Massachusetts Competitive Partnership, are now considering legal action.
It is entirely possible that the full $1.9
billion in projected tax revenue will never be accrued. For example, in 2013,
Massachusetts implemented a tax hike on the sale of cigarettes, increasing
their sale from $2.51 to $3.51 per pack in the hopes of increasing state
revenue. Unfortunately, this sales tax failed miserably, and we instead saw a
drastic increase in illegal smuggling of cigarettes into the state, as well as
an increase in residents driving over the border into New Hampshire to purchase
their cigarettes rather than purchase them in-state, and consequently lost out
on the projected revenue. Researchers at the Mackinac Center for Public Policy
hypothesized that the increase in sales tax on cigarettes led to the drastic
spike of illegally purchased cigarettes in Massachusetts, as the percent of
cigarettes brought illegally into the state rose from 12 percent in 2013 to
29.3 percent in 2014 after the tax had been implemented.
In response to increases in a state’s
average income tax rate, many of the state’s top earners will likely relocate
to avoid the new surtax on their income, thus eliminating the primary source of
the proposed surtax-generated funding. The state of New Jersey experienced this
phenomenon in 2003. According to 2012 findings by the New Jersey Department of
the Treasury, the state accumulated a net loss of approximately 18,000 to
28,000 taxpayers who relocated, and suffered an annual income loss of between
$2.2 billion and 2.4 billion between 2003 and 2010. New Hampshire Governor
Sununu must be licking his chops hoping for us to pass this ballot measure.
Additionally, there is concern of the
volatility of capital gains taxes, which are, under the graduated income tax
proposal, depended on to provide about $500 million of the new tax revenues.
The Massachusetts Taxpayers Foundation noted that in 2002, capital gains tax
collections dropped by $670 million and by a whopping $1.65 billion during the
recession in 2008. Issues associated with tax hikes are not partisan, and
Democratic Gov. Dannel Malloy of Connecticut said it best: “I’ve raised taxes
multiple times. It’s not working. And it’s come up a cropper … Spurring
economic growth is what’s necessary.”
Historically, graduated income tax ballot
proposals have failed in Massachusetts. Between 1962 and 1994, Massachusetts
voters rejected five of these ballot initiatives, and the most recent in 1994
was defeated by a margin of more than 2-1. Come November, I urge you to
consider all of the facts when considering the graduated income tax ballot
question and demonstrate the same wisdom as we have in the past.
