The ‘millionaire tax’: California here we come

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Massachusetts progressives are making another try at amending the state constitution to permit a graduated income tax. This is after unsuccessful efforts to do the same thing in 1962, 1968, 1972, 1976 and 1994.

But this time is different. In 1994, proponents were upfront about what they had in mind. They put two measures on the ballot – one to amend the constitution and a second to put a specific graduated rate structure before the voters for their approval. Now the plan is to let voters find out after they have approved the amendment exactly what they will be getting in the form of a graduated rate structure.

The strategy adopted by the amendments architects is so duplicitous as to raise the possibility that they are deceiving themselves as much as they are deceiving the voters.

At first glance, the petition seems reasonable enough. It simply calls for “an additional tax of 4 percent on that portion of annual taxable income in excess of $1,000,000” and earmarks the new tax revenue to provide for “quality public education and affordable public colleges and universities, and for the repair and maintenance of roads, bridges and public transportation.”

What’s not to like?

Indeed, the amendment itself simply creates two tax brackets, with income of a million dollars or less taxed at one rate (5.15 percent for 2015 income) and every dollar over one million dollars taxed at that rate plus 4 percent.

What the amendment masks, however, is the likelihood that once it becomes law, it will lay the groundwork for further tax increases that will fall on income earners well below the million-dollar threshold. To say that the amendment is supposed to impose a higher tax on only “the commonwealth’s highest income residents” is the height of chicanery.

Let’s see why.

The amendment adds a new paragraph to article XLIV of the state constitution. Under that article, as it now stands, the state may impose an income tax, but it must levy the tax “at a uniform rate … upon incomes derived from the same class of property.” And it this language that has been interpreted to prohibit legislation that would tax income at a graduated rate.

What the amendment does, in effect, is authorize the imposition of a graduated rate, inasmuch as it puts a graduated rate right into the text of the Article. If the Article, as amended, now requires that income be taxed at a graduated rate, how can it prohibit legislation that would expand upon the same principle?

The conclusion is that the amendment was written to permit the legislature to redo the entire tax code, without the necessity of further amending the constitution, and in the process to create whatever new tax brackets it chooses and to tax income in those brackets however it chooses.

The beauty of this scheme lies in the fact that it avoids revealing to voters just what the tax code will eventually come to be after the amendment is adopted. The message is, “Hey, unless you make more than a million dollars a year, you lose nothing by voting yes. Trust us on this.”

But can there be any doubt that once the once the amendment is adopted, there will be pressure to force taxpayers making more than $750,000 a year to pay more?  Or taxpayers making more than $500,000? Or taxpayers making more than $100,000? With the constitution stripped of any obstacle to the creation of additional brackets and additional rates, it is easy to see how there will be no resisting these pressures.

Any hope that there will henceforth be just two brackets flies in the face of experience. Tax Foundation data show that of the 32 states that had a graduated income tax in 2014, only two (Kansas and Maine) got by with only two brackets. California had 10 brackets. Its own top rate for 2015 comes in at 12.3 percent. See Table 1. If Massachusetts voters understood that their state code could come to look anything like California’s, they would vote no in droves.

Table 1 
California’s Income Tax Brackets 
(2015 tax year) 

Rate                                              Taxable Income 
                                                  (couples filing jointly) 
1.0%   >                                                  $0
2.0%   >                                             $15,700
4.0%   >                                             $37,220
6.0%   >                                             $58,744
8.8%   >                                             $81,546
9.3%   >                                           $103,060
10.3% >                                           $526,444
11.3%  >                                           $631,732
12.3%  >                                         $1,052,886

The fact that the amendment leaves Massachusetts open to this kind of rate escalation is just one example of the duplicity at work here. What about the promise that the new tax would promote social justice? If the new money really does go to roads and schools, it will end up in the pockets of unionized construction workers and school teachers. None of it will go directly into the pockets of low-income earners.

Ironically, the unions behind the amendment might be disappointed too. Under Article XLVIII of the constitution, “no measure  . . . that makes a specific appropriation of money from the treasury of the commonwealth, shall be proposed by an initiative petition.” Which clearly conflicts with that portion of the amendment that earmarks the new money for roads and schools. And it is impossible, anyway, despite the language of the amendment, to guarantee that existing funding of roads and schools will get a $1.5 billion boost. Money is fungible. The legislature could easily shift funds that currently go to roads and schools to other purposes even as it shunts the new money to those uses.

As Karl Marx famously said, “History repeats itself, first as tragedy, second as farce.” If Massachusetts progressives have figured out how to get voters to buy into the idea of a graduated income tax, they will have added a new chapter to history as farce. Everyone will end up being fooled – the voters, the unions and certainly low-income taxpayers. Only the legislature, with its new $1.5 billion slush fund, will be happy.

David G. Tuerck is executive director of the Beacon Hill Institute.