Millionaires Tax A Boon For Equity Or A Bust For The Economy In Massachusetts?
By Matt McDonald | January 13, 2022, 23:14 EST
Is the proposed surtax on million-dollar earners an opportunity to raise large sums of money for vital public needs from the wealthiest residents of Massachusetts? Or is it a job-killer that would stick it to small business owners and end up hurting everyone?
And is it a done deal, because a supermajority of voters in Massachusetts support it? Or is the outcome less clear?
Advocates on either side of the so-called Millionaires Tax clashed on Thursday.
A ballot question set for November 2022 asks voters if they want to approve an amendment to the state constitution that would allow the Massachusetts Legislature to tax annual incomes of $1 million and higher an additional 4 percent, on top of the 5 percent flat tax that all taxpayers in the state pay now.
Supporters of the Millionaires Tax took the initiative Thursday, January 13, with the announcement of a study showing the surtax would bring in about $1.3 billion in new revenue to the state government and a new MassINC poll finding that 70 percent of registered voters in the state support the idea.
The authors of the pro-surtax report, produced by the Center for State Policy Analysis at Tufts University’s Tisch College, don’t believe that tax cuts stimulate the economy or that tax increases drag it down.
“Critics of the proposal sometimes argue that it would cost jobs and blunt economic growth,” the Tufts report states. “But just as decades of research on tax cuts have failed to reveal large stimulative effects, tax increases of this size are unlikely to meaningfully dampen economic activity.”
But a critic of the Millionaires Tax said Thursday that it would harm the state’s small businesses.
David Tuerck, an economist and president of the Beacon Hill Institute, a right-of-center economics think tank, noted that supporters of the surtax tout equity among classes and races as a reason to back it.
“But the Tufts study ignores the fact that it’s going to cause job losses. And those job losses won’t be limited to wealthy people. They will affect everybody,” Tuerck said Thursday during a press conference organization by the Massachusetts Fiscal Alliance, which also opposes the surtax. “… The measure is not widely appreciated for the harm it will do to the economy.”
The Tufts study predicts that only about 500 millionaire families would move out of state if the Millionaires Tax takes effect, because rich people “tend to be deeply connected to the communities where they live and work” – including having “kids in schools and nearby businesses to run” in addition to “the network of investors, mentors, and collaborators that helped drive their success.”
Tax avoidance is another story. The authors of the Tufts study hedge on how much rich Massachusetts residents would manage to avoid taxes by restructuring their earnings.
“Exactly what this will mean for millionaires tax collections is uncertain. Unlike the question of relocation — where there’s a fair amount of consensus among researchers — estimates of the relationship between tax rates, tax avoidance, and state tax collections vary widely,” the Tufts report states (on page 5). “Our central estimate is that behavioral changes related to tax avoidance would reduce revenues from the proposed tax by roughly 30 percent, or $670 million in 2023. But there’s a wide range of possibility, in both directions. Some well-regarded research implies far less avoidance; evidence from California points to larger losses.”
Tuerck, who published a study on the Millionaires Tax in June 2021, found it would bring in about as much revenue to the state government as the Tufts study authors found – about $1.2 billion, as opposed to the Tufts study estimate of about $1.3 billion. But Tuerck predicts a negative effect on the state’s economy.
“It’s our argument that if you’re going to ask the voters to approve this measure, you have to tell them what it’s going to do to jobs, what it’s going to do to investment, what it’s going to do to disposable income. And we find that it’s going to kill 9,000 jobs the first year. And then, of that harm to the economy, a big chunk will be due to outmigration of about 4,000 families. That’s a much bigger number than the Tufts people come up with,” Tuerck said Thursday, January 13.
What Would The Money Be Used For?
Supporters of the surtax say the extra revenue would help public education and transportation. The proposed constitutional amendment states that the surtax on million-dollar-plus incomes is “To provide the resources for quality public education and affordable public colleges and universities, and for the repair and maintenance or roads, bridges and public transportation.”
State Senator Jason Lewis (D-Winchester), a supporter of the surtax, told State House News Service on Thursday that he “fully expects” that the Massachusetts Legislature will in the future spend the extra funds on education and transportation.
“The language of the ballot question, which again, will be in our state constitution, says very clearly that this money needs to be spent only on education and transportation. I think that gives very clear direction to future Legislatures and governors,” Lewis said, according to State House News Service.
Opponents said that’s not likely to happen.
“Since the Legislature appropriates the revenue, only the Legislature will have the final word in terms of what will be spent and for what,” said state Senator David DeCoste (R-Norwell), during the Massachusetts Fiscal Alliance press conference Thursday. “The idea that these funds will somehow be fenced for transportation and education is really unrealistic. They are very broad categories and many line items – to include pensions – could be considered to fall under these categories. And for that reason, I think this is a bad initiative, and I will actively oppose it.”
Another opponent, state Representative Marc Lombardo (R-Billerica), said the state Legislature doesn’t need the extra revenue, given how much revenue has been coming in from taxpayers and from the federal government.
“The reality is that Massachusetts is flush with cash,” Lombardo said during the Massachusetts Fiscal Alliance online press conference Thursday. “… Massachusetts has money coming in. We have more than enough to fund these critical programs that we need without raising taxes on the hardworking families.”
Will It Pass?
It’s widely assumed on Beacon Hill that the Millionaires Tax ballot question will pass in November. One example: state Representative Shawn Dooley (R-Norfolk), while testifying Wednesday, January 12 in favor of a bill that would increase the threshold of the state’s estate tax, referred at one point to what he called “the reality that the Millionaires Tax – the additional 4 percent tax – will probably pass next year at the ballot.” (The comment is at 39:15 of the hearing video.)
A poll released Thursday by MassINC lent support to that notion, finding that 70 percent of registered voters support the Millionaires Tax. The poll found that even 55 percent of self-identified Republicans somewhat or strongly support the Millionaires Tax.
But Paul Craney, a spokesman for the Massachusetts Fiscal Alliance, which opposes the Millionaires Tax, questioned the methodology and the results of the poll.
He said that to be a useful predictor a poll ought to use likely voters instead of registered voters in its sample. He also challenged the poll’s finding that a majority of Republicans support the Millionaires Tax.
The 2022 Massachusetts general election is scheduled for November 8.
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