The “millionaires tax” is a failure.
Evidence from states that have already imposed a surtax on incomes of more than $1 million shows that the policy causes irreparable harm to the economy while generating far less tax revenue than promised.
A millionaires tax will cause the same harm in Massachusetts, Associated Industries of Massachusetts will tell the Legislature’s Joint Committee on Revenue today.
Lawmakers have refiled a proposal to amend the state Constitution to impose a graduated income tax, adding a four percentage-point tax (representing an 80 percent increase in the personal income tax rate) on all incomes more than $1 million. The amendment would dictate that the revenue be spent on transportation and education.
An identical proposal was struck down by the Supreme Judicial Court last year in a suit brought by AIM President Rick Lord and the leaders of four other business groups, but the current proposal operates under different rules because it was filed by legislators.
A graduated income tax would eviscerate the small, family owned businesses that form the heart of the Massachusetts economy. The surtax would take an estimated $2 billion from some 17,000 Main Street businesses and others that pay taxes at the individual rate and who would otherwise use the money to hire additional employers or expand their companies.
These companies are already drowning in more than $1.5 billion in new taxes and fees to pay for a financial shortfall in the Medicaid program and to fund the new paid family and medical leave program.
How do we know that surtaxes don't work?
Because our neighbors in Connecticut just drove their economy off a cliff by raising taxes three times in the past 10 years.
Connecticut in 2009 added a 6.5 percent income tax bracket for those earning more than $500,000 per year. The state followed up with a comprehensive $1.5 billion tax increase in 2011 to deal with a budget shortfall. A final round of tax increases took effect in 2015.
According to information compiled by Pew Charitable Trusts, tax revenue for all 50 states is averaging 6.3 percent higher than it was at the start of the 2008 recession. Connecticut tax revenue, on the other hand, is only 3.8 percent higher, despite the three tax increases.
Once the economic heavyweight of New England, Connecticut is the only state in the nation which has yet to recover the jobs lost during the economic downturn.
In addition, the state has seen an out-migration of residents since 2013 and the loss of major financial investors. Data from the Internal Revenue Service showed a spike in residents earning more than $200,000 per leaving the state in 2015 and studies conducted by Connecticut state agencies and commissions have confirmed the loss of higher income residents to other states.
Income surtax laws have failed in other states as well.
Within three years of Maryland enacting its “millionaire tax,” 40 percent of the state’s seven-figure earners were gone from the tax rolls - and so was $1.7 billion from the state tax base.
Similarly, in 2010 Boston College researchers released a report on the migration of wealthy households to and from New Jersey. They concluded that wealthier New Jersey households did in fact consider the high-earner taxes when deciding whether to move to or remain in New Jersey.
The researchers’ data analysis found that from 1999 to 2003 - before the millionaires tax was imposed - there was a net influx of $98 billion in household wealth into the state. After the tax was implemented, an increasing number of wealthy families left the state, resulting in a loss of $70 billion in wealth.
Many of the business owners who fled Connecticut, Maryland and New Jersey moved to states that have worked to reduce, rather than boost, taxes:
- North Carolina revenues grew 3.8 percent in 2016. As a result, it has reduced its 5.49 percent income tax to 5.24 percent in 2019. It also will reduce its corporate tax to the lowest in the nation at 2.5 percent and will repeal the corporate levy as more businesses move in and revenues increase.
- New Hampshire, a state with no income tax, is reducing corporate taxes two years in a row because of revenue growth of 2 percent.
- Georgia is also reducing income and corporate taxes in 2019 because of a strong revenue growth rate of 4.5 percent.
- Tennessee only taxes interest and dividends and reduced tax rates from 6 to 3 percent as its population grew 6.7 percent from 2010-2017 and revenues increased 2.4 percent.