Proposed ‘millionaire tax’ gets hearing on Beacon Hill
By Evan Lips | January 19, 2016, 18:33 EDT
BOSTON — Days after Connecticut woke up to news that corporate behemoth General Electric is moving to Massachusetts to escape an inhospitable tax climate, the Massachusetts legislature held hearings on whether to impose a “millionaire’s tax,” an additional tax to income earned in excess of $1 million.
The hearing before the Joint Committee on Revenue, which attracted scores of citizen spectators on Tuesday, is the next step in a years-long process to get the proposed constitutional amendment before voters on the 2018 ballot.
The current state income tax rate stands at 5.15 percent. Should the proposed constitutional amendment go into effect, any money a Massachusetts resident earns in excess of the annual $1 million threshold would be taxed an additional 4 percent.
Massachusetts Teachers Association President Barbara Madeloni was one of dozens who testified in favor of the initiative.
“We have the eighth-highest income inequality here in Massachusetts,” Madeloni said, referring to the Commonwealth’s national ranking. “It’s time we made a commitment in the Commonwealth and invite the wealthiest among us to share and contribute to the common good.
“Funds for public education, funds for roads, fund for public transportation — they benefit all of us.”
John Miller, an economics professor at Wheaton College, supports the initiative and testified Tuesday that “the fairest and best way to finance these much-needed investments is to ask our high-income residents to pay their fair share in taxes.”
Miller claimed that the top one percent earners pay a small share in state and local taxes than the remaining 99 percent.
“This really is a fair-share tax,” Miller said.
The proposal’s language stipulates that the extra revenue will be earmarked for transportation and education. But David G. Tuerck, Executive Director of the Beacon Hill Institute and one of a handful of those who testified against the initiative, said that by claiming the money is for roads and schools, supporters of the amendment “perpetuate a fraud.”
Under the state constitution, initiative petitions cannot appropriate revenue. Indeed, the language of the proposal stipulates that revenue allocations are “subject to appropriation by the state Legislature.” Any revenue generated by the measure, therefore, goes into the general fund.
Tuerck, who teaches economics at Suffolk University, explained that “because tax revenues are fungible, it is impossible to honor a promise that the new revenues raised by this measure will be spent for any set of enumerated purposes.”
Tuerck also said the proposal would cost the state 9,500 private sector jobs and $405 million annually in “personal disposable income.”
He pointed to the decision by General Electric last week to abandon its headquarters in Connecticut, whose lawmakers last summer passed a budget raising taxes by $1.9 billion, and move to Boston.
Tuerck noted that “had that move taken place last year, a GE executive who had $2 million in taxable income would have had to pay $9,000 more in state income taxes by moving his residence from Connecticut to Massachusetts, an amount that would have made the move to Massachusetts look less attractive.”
Chip Faulkner, associate director for Citizens for Limited Taxation, which also opposes the measure, said during Tuesday’s hearing that advances in technology will make it easy for millionaires targeted by the tax surcharge to “kiss Massachusetts goodbye.”
According to the Yankee Institute, a Connecticut think tank, between 2011 (when Massachusetts’ southern neighbor dramatically increased taxes) and 2013, more than 27,000 residents along with $3.8 billion in income left the Nutmeg state.
State Sen. Ryan Fattman (R-Sutton), a minority member of the committee, disputed the notion of the surcharge being a “fair-share tax.” In an interview following the hearing Fattman also discussed the unconstitutional nature of the proposal.
“This idea you’re going to making an investment in education or transportation is not based on fact,” Fattman said. “It will cannot be directed there and it’s misleading to voters to say it can.”
Supporters of the proposal pointed to studies showing that Massachusetts residents are the 25th-most taxed in the nation, meaning there is room for more revenue-generating initiatives.
Fattman later questioned the glass half-full taxation logic.
“How is that a good reason to raise taxes?” Fattman said. “It’s like they’re saying, ‘See we can raise taxes, we’re no longer Taxachusetts.’”
Raise Up Massachusetts, the group supporting the measure, announced last month they submitted more than 157,000 signatures to the state, 92,617 of which were certified, far surpassing the amount required to advance it to the state Legislature.
The Committee now has until April 27 to decide whether it will issue a favorable report, although several sources close to the committee say the matter will be decided by the end of the month, setting up a vote by the full Legislature for next month. To advance the measure to the full Legislature, a majority of the committee must vote to approve.
The proposed amendment to the state constitution needs the support of at least 50 members of the combined 200-seat House and Senate in two separate legislative sessions in order for it to go before voters at the ballot box in 2018, coinciding with the gubernatorial election.
If successful, the initiative would create first graduated income tax for Massachusetts filers. Massachusetts voters have defeated surtax proposals five times since 1962, the last defeat occurring in 1994. The measure would not impact incomes until 2019.
Asked about why so few showed up to testify against the measure, Fattman was succinct:
“They’re probably all at work right now.”