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The Punish-the-Rich Tax Hike

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eye on the news

The Punish-the-Rich Tax Hike

Despite budget surpluses, Massachusetts Democrats plot a giant increase on wealthy residents. June 25, 2021
Economy, finance, and budgets
Politics and law

Massachusetts’s state-government coffers are “awash” in cash, as tax collections come in well ahead of projections. State and local governments are also divvying up $8 billion from the so-called Biden stimulus. Things look so good in the state capital, in fact, that legislators now want . . . to raise taxes by another $2 billion. That’s right: with all that money in hand, the Massachusetts legislature voted earlier this month to place a “fair share” amendment before voters next year that would raise taxes by 80 percent on those earning more than $1 million.

Voters must have their say because the state constitution prohibits a graduated income tax. Instead, everyone pays a flat 5 percent tax rate. Twice since 1998, voters have used the initiative process to lower income taxes in the state—once by reducing the rate from 5.95 percent and once by cutting taxes on dividends and interest. Legislators seem to think that voters are in a different mood this time, as the new initiative would place a 4 percent income-tax surcharge on millionaires.

Supporters, including the Democratic leadership in the state legislature and powerful unions representing state workers, designed the tax initiative to pay for increased public school spending and transportation projects. “Long before the pandemic, Massachusetts needed new investments in our transportation and public education systems,” one of the groups pushing the amendment, Raise Up Massachusetts, argues. But Massachusetts public schools already rank sixth among states in spending per pupil. And the schools are hardly in crisis. They typically rank as among the best in America, and they’re about to get some $2.8 billion in federal stimulus aid.

Despite these numbers, the proposal’s supporters may think voters will want to keep up with other states that have been raising taxes. Two of the main supporters, state senator Jason Lewis and state representative Jim O’Day, pointed out that California, New York, New Jersey, Vermont, Minnesota, and Oregon all have top tax rates at or above what the Massachusetts rate would be if the ballot initiative passed. “Even many red states have top marginal income tax rates well above our current 5 percent rate,” they argued.

It’s true that, despite its reputation as Taxachusetts, the state’s total tax bite is reasonable. A recent study by WalletHub ranking states by taxes as a percentage of personal income placed Massachusetts a modest 21st in terms of total burden. Voters have made it that way: in addition to their votes to lower income-tax rates, they passed, back in 1980, a cap on property taxes, Proposition 21/2, that limits those tax increases. The state’s property-tax bite is thus far more modest than surrounding northeastern states, all of which rank in the top ten in tax burden on homeowners.

Proponents of a tax increase have been persistent. Two years ago, a ballot initiative proposed to raise taxes by 4 percent on millionaires. The state’s supreme court, however, invalidated that effort, as the proposition had a dual purpose—to raise taxes and to create a dedicated spending stream on projects—and therefore violated the rules of the initiative process. The new ballot question contains different language that supporters hope will pass the court’s muster.

Though supporters, especially the teachers’ union and SEIU, are likely to spend heavily on the initiative, opponents can bank on opposition to it from the state’s popular Republican governor, Charlie Baker. Back in 2019, when supporters were first cooking up the latest tax-raising scheme, he said, “We have plenty of money and the ability to work within that framework to get things done.” Thanks to the federal stimulus and the quicker-than-expected recovery from lockdowns, Massachusetts has an even greater financial cushion right now. But Baker worries about whether the momentum of the state’s recovery will continue, or such a sharp tax increase will send businesses and investors elsewhere. “We have hundreds of thousands of people who are looking for work, and we actually don’t know exactly what the impact of the pandemic is going to be on how people think about where and how they work,” he said recently.

The proposed tax hike represents a new trend among increasingly left-leaning Democrats to seek tax increases on wealthier individuals not because they’re needed, but because advocates consider them “fairer.” New York, for instance, recently raised taxes on high-income earners even though the state is also swelling with cash, including some $12.5 billion in federal stimulus money. At the time, one of the state’s business leaders observed that the increase was “a political statement aimed at punishing the rich—not a reflection of economic need.”

Massachusetts legislators have taken the same approach. Let’s see if voters buy it.

Photo by Tim Graham/Getty Images

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