Editor's note - Beacon HIll lawmakers will vote on Wednesday whether to place on the 2018 statewide ballot a proposed constitutional amendement that would impose a four percentage-point surtax (an 80 percent increase) on incomes of more than $1 million. AIM opposes the Constitutional Amendment Tax Trap and will look at the myths and facts surrounding the issue each day through next Wednesday.
Myth: The new tax revenue will be dedicated to funding only investments in public education and transportation.
Fact: There is no guarantee that any additional funds from the increased income tax would go to education, transportation or any other dedicated purpose. Any new tax revenue will go straight to the state’s general fund to be appropriated by the legislature for any purpose whatsoever.
The proponents are asking taxpayers to trust future legislatures to keep this spending promise. Unfortunately, the legislature has a long history of diverting the flow of funds that taxpayers believed were “dedicated” for a specific purpose. For example, the leader of a Massachusetts anti-smoking non-profit estimates that 99 percent of $851 million in state tobacco taxes and related revenues have been diverted away from the tobacco cessation programs they were “dedicated” to support.
Similarly, the legislature has previously diverted tens of millions of dollars from the Renewable Energy Trust Fund and the Workforce Training Fund to satisfy unrelated spending demands.
(Source: Lawrence Eagle Tribune, 1.27.13)
Myth: This new tax will support approximately $2 billion in additional state spending.
Fact: It is unlikely that actual revenues from the new tax will be remotely close to the $2 billion proponents estimate.
Many of the individuals who are most likely to be impacted by the tax are highly mobile and their income can fluctuate significantly from year to year. Any revenue generated by the new tax will be volatile at best. When these taxpayers leave Massachusetts, the state will lose significant revenue it would otherwise have captured.
Maryland estimated its 2007 “millionaire tax” surcharge would raise $330 million. Instead it raised just $120 million, leaving state lawmakers - who had immediately locked in $330 million in additional, permanent spending - with a gaping budget deficit. Researchers also estimate Maryland lost $5 billion in personal income tax collections from 2000 to 2010 due in part to high income individuals migrating to states with lower taxes.
Connecticut first adopted an income tax in 1991 and the state taxes high income earners at a rate of 6.99 percent, more than double the rate applied to the lowest tax bracket. In the past 25 years, Connecticut lost more than $12 billion in net adjusted gross income to other states.
(Sources: Maryland Public Policy Institute; the Tax Foundation; the Yankee Institute for Public Policy; Forbes.)