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Income Tax Surcharge Would Harm Business

Posted by John Regan on Jun 14, 2017 2:07:38 PM

We call ourselves a commonwealth.

From the preamble of the Massachusetts Constitution:

“The body politic is formed by a voluntary association of individuals: it is a social compact, by which the whole people covenants with each citizen, and each citizen with the whole people.”

This notion, affirmed in the language of Article XLIV of the Constitution, states that taxes “shall be levied at a uniform rate throughout the commonwealth upon incomes derived from the same class of property.” Everyone is treated the same.

Now the Legislature is considering a petition to amend the language of Article XLIV in a manner that would increase by 80 percent the taxes paid on incomes in excess of $1 million, adjusted annually by the same method used for federal income tax brackets to reflect any cost-of-living increases. According to the ballot question language, every dollar of income more than $1 million would face a tax of 9.1 percent.

Those earning $1 million of income per year currently pay 95 percent more tax than those making $50,000 annually - an income of $50,000 generates a tax obligation of $2,550, while the $1 million dollar income generates $51,000 of income tax (all things being equal).

Some additional facts to note:

  • This significant new tax burden will fall on individuals and certain business entities paying taxes at the individual rate. It is hard to imagine that this new obligation will not impede investment, employment, and certain locational decisions.
  • The Department of Revenue estimates (with some assumptions) that the proposal will generate between $1.6 billion to $2.2 billion, with $1.9 billion identified as the median.
  • The $1.9 billion tax increase will be paid by roughly 19,500 filers, 80 percent of whom are anticipated to file with some business income.
  • Those 19,500 filers represent half of 1 percent of all tax returns filed with the Department of Revenue.
  • Eighty-six percent of the affected taxpayers will be married couples filing jointly, and 11 percent will be individual filers with earnings of more than $1 million.

Advocates for this constitutional amendment focus on the revenue derived therefrom rather than the uneven or inequitable method of its generation. The amendment requires that generated revenues shall be used:

“…to provide the resources for quality public education and affordable public colleges and universities, and for the repair and maintenance of roads, bridges and public transportation, all revenues received in accordance with this paragraph shall be expended, subject to appropriation, only for these purposes.”

However, Section 2 of Article XLVIII of the Constitution clearly enumerates so-called “Excluded Matters” by stating in part: “No measure… that makes a specific appropriation of money from the treasury of the commonwealth shall be proposed by an initiative petition…” For a petition to be constitutionally valid, the Legislature must retain the ability to use tax revenues for any public purpose the Legislature deems appropriate.

It follows that a “yes” vote necessarily diminishes the authority and responsibility invested in the members of the Massachusetts General Court. Our Constitution gives members of the House and Senate the sole authority to authorize how tax revenues are appropriated. Any assertion by the petition's proponents about limiting how the money is used is folly and prohibited by the Constitution. By passing the amendment, legislators abdicate their constitutionally protected authority.

The 4,000 member employers of Associated Industries of Massachusetts therefore urge a “No” vote on this measure.

Before we approve a policy that raises so much from so few we must ask – does this imbalance make the commonwealth a better, or a worse place?

We would suggest that it makes Massachusetts an unfair place.

Topics: Taxes, Income Surtax

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