Leave ‘Taxachusetts’ dead and buried

Printed from: http://newbostonpost.com/2016/02/02/leave-taxachusetts-dead-and-buried/

Will “Taxachusetts” soon join the undead? On Wednesday, lawmakers on Beacon Hill have an opportunity to drive a stake through the heart of that long-derided state nickname, by refusing to vote for a new 4 percent surcharge on million-dollar incomes.

If legislators give the proposed constitutional amendment the 50 votes needed to advance the measure, it will still take years to determine whether it becomes law. The soonest it could take effect would be 2018, but that presumes a second favorable vote by 50 legislators and then by voters, who have rejected earlier tax-increase proposals five times at the ballot box. That’s not to suggest it faces long odds in a state dominated by Democrats and liberals banging the drum over “income inequality” and “tax fairness.”

There are solid arguments to be made against it, including that it could open the door to further graduation of income-tax rates. But one argument in favor – that it would boost state revenue by $1.9 billion a year – is highly suspect.

For one thing, should the proposed roughly 75 percent tax increase on the state’s highest earners take effect, it’s hard to imagine that a substantial portion of the targeted taxpayers wouldn’t reconsider where they live. New Hampshire, where ordinary income isn’t taxed at all, would beckon all the more loudly.

Tax-flight doubters might only look to California, where rates went up for high-income earners in 2012, to 13.3 percent from 10.3 percent for million-dollar incomes. Take note: That’s a good deal smaller that the proposed Massachusetts hike. California Gov. Jerry Brown, a Democrat, urged voters to back a ballot measure to impose the increase, saying it would add $9 billion a year to state revenue.

The increases began on filers with incomes of $250,000 or more, so it may well have boosted state coffers by something close to Brown’s projection. But the gain didn’t come out of the wallets of the highest income earners.

Instead, the total amount owed by those in the top bracket fell in the first year that taxpayers had a chance to protect themselves from the increase. California state data shows a $5.2 billion, or 21 percent, drop in taxes owed by millionaire earners in 2013 from 2012, while there was a 7 percent decline in the number of filers in the highest-income bracket.

In 2012, the number of top-rate filers and what they owed had risen substantially from 2011, which may have reflected the retroactive nature of the increase imposed by the ballot measure, called Proposition 30. When it passed in November 2012, it affected income earned after Jan. 1 of that year. While the number of high-income filers had climbed 26 percent in 2012, the amount owed by this group almost doubled.

There’s really no way to tell if 4,000 or so million-dollar earners fled the Golden State in 2013 to escape the higher tax rate, though anecdotal evidence suggests some did. For instance, a significant jump in high-end home sales was reported in the Lake Tahoe area, near the California state line with Nevada, a state that doesn’t have an income tax.

Should a significant number of Massachusetts high-income earners abandon the state, they’ll probably take their investible capital along with them. The Associated Industries of Massachusetts says it would likely affect investment decisions and resulting jobs. The Beacon Hill Institute’s David Tuerck has estimated a loss of 9,500 jobs if the millionaire tax, as it’s often called, takes effect.

Whether that could happen in Massachusetts remains an open question. But it’s not hard to find southern New Hampshire residents whose families hailed from the Boston area, where most of the approximately 13,000 million-dollar earners lived in 2012, according to Revenue Department data obtained by the Boston Business Journal. And it’s not uncommon to hear from those who moved north that lower taxes was among their reasons. Whether people react to taxes is easy to see in the large numbers of Massachusetts plates on cars crowding parking lots of retailers in Nashua and Salem, New Hampshire, around the holidays. It’s not hard to imagine shoppers are lured there by the absence of a sales tax.

For all the good things that have happened to kill Taxachusetts, New Hampshire still beats the Bay State when it comes to overall taxation, according to the Tax Foundation in Washington. It scores Massachusetts in the middle of the pack of all 50 states, ranking it 24th, where 50 is worst. The Granite State comes in at seventh. By many foundation measures, Massachusetts goes easier on taxpayers than most other Northeast states.

Advocates of the millionaire tax say the increase would merely put Massachusetts on a more equal footing with other Northeastern states that have graduated rates, such as New York, Connecticut and Vermont. But keeping the Bay State out of that category has been a significant achievement that most likely helped Boston attract General Electric’s corporate headquarters from the Nutmeg State, where Gov. Dan Malloy, a Democrat, has aggressively pushed tax hikes.

Supporters of tax increases always cast it as a question of fairness, in no small part by pointing to government services that it would fund, an argument taken up by some Democrats on Beacon Hill. But no one should forget that the last major tax hike lawmakers imposed came from Democrats led by Speaker Robert DeLeo in the House of Representatives. And the Winthrop lawmaker’s 25 percent hike in the sales tax, to 6.25 percent from 5 percent, disproportionately hit the wallets of working people and the poor.

Massachusetts has done much to shed the nickname Taxachusetts, by holding back increases and even getting the Legislature to start rolling back the income tax rate to the current 5.1 percent from 5.85 percent in 2000. This is no time to resurrect the dead.

NBPEconomic

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