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The Millionaires Tax is a Failure

Posted by John Regan on Apr 11, 2019 8:34:11 AM

The “millionaires tax” is a failure.

Small BusinessEvidence 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.

Topics: Massachusetts Legislature, Income Surtax, Taxation

Business Leaders File Suit Against Proposed Income Surtax

Posted by Christopher Geehern on Oct 3, 2017 11:17:56 AM

AIM President and Chief Executive Officer Richard C. Lord is among five prominent business leaders who filed suit today challenging the validity of a proposed constitutional amendment imposing a surtax on incomes more than $1 million.

ScalesofJusticeVerySmall.jpgThe five business and fiscal policy leaders - representing a range of traditional and well-established companies, innovative start-ups and small and owner-operated businesses throughout the Commonwealth - filed their complaint with the Supreme Judicial Court, challenging an initiative petition recently certified for the 2018 Massachusetts ballot.

The initiative petition at issue in the complaint seeks to amend the state Constitution to impose a new graduated income tax, adding a new four percent tax (representing an 80 percent increase in the personal income tax rate) on all incomes more than $1 million and dictating how the revenue must be spent.

The plaintiffs assert that the proposal is riddled with constitutional flaws. It cynically and improperly combines a graduated income tax that has been rejected each and every time by Massachusetts voters, with attractive spending in a prohibited manipulation of the vote called “logrolling.” And it does something that has never been done before: never in the history of Massachusetts has a tax or tax rate been set in the Constitution, making the new tax essentially permanent and unchangeable.

The five plaintiffs lead organizations that represent the full breadth of the Massachusetts economy and are united in their commitment to ensuring that the Commonwealth continues to foster conditions that support job development and economic growth. They are: Christopher Anderson, President of the Massachusetts High Technology Council, Inc. (MHTC); Christopher Carlozzi, Massachusetts State Director of the National Federation of Independent Business (NFIB); Richard Lord, President and Chief Executive Officer of Associated Industries of Massachusetts (AIM); Eileen McAnneny, President of the Massachusetts Taxpayers Foundation (MTF); and, Daniel O’Connell, President and Chief Executive Officer of the Massachusetts Competitive Partnership (MACP).

The named defendants in the lawsuit are Attorney General Maura Healey and Secretary of State William Galvin.

“It is really important to understand that this lawsuit is not about whether creating a new graduated income tax is good public policy or bad public policy, it is about the way that it is being done, which we find to be so clearly flawed and unconstitutional that it is alarming,” said Chris Anderson of the MHTC, speaking on behalf of the plaintiffs.

“We would be equally opposed if they were proposing the opposite and trying to roll back the income tax and cut funding for education or transportation. Amending the Constitution to achieve taxing and spending by popular vote is just a terrible idea, and could undo much of the good work that Massachusetts has done in terms of creating a successful economic climate.”

The plaintiffs also note that it is critical to understand the difference between typical initiative petitions (also referred to as ballot questions) that amend state statutes, which voters are accustomed to seeing, and this ballot question that would change the Massachusetts Constitution and strip the Legislature of its ability to easily amend the policy in the future. Only three initiative petitions to amend the Constitution have ever appeared on the ballot.

The plaintiffs’ complaint, prepared and filed by attorney Kevin Martin of Goodwin Procter, outlines three critical ways in which the proposal violates the requirements and restrictions of Article 48 of the Massachusetts Constitution – which specifies the limits of the initiative petition process – and is therefore unconstitutional.
  • It combines three unrelated subjects: it establishes a graduated income tax, and mandates spending the money raised only on education and transportation. These three parts are not mutually dependent or related and for this reason violate Article 48’s ban on “logrolling,” a strategy by which an unpopular provision is joined with a popular provision making it more likely they both will pass. Here, the filers of the proposed initiative petition are seeking to pass the unpopular graduated income tax – rejected by Massachusetts voters five times in its history – by combining it with the popular causes of funding for education and transportation.

  • The second legal flaw is that it improperly allocates funding. Article 48 specifically bars initiative petitions that “make a specific appropriation of money from the treasury” and this one would require that all revenue raised by the new tax be spent “only” on education and transportation. This usurps the Legislature’s sole Constitutional authority to set state spending policy.

  • The third constitutional problem is that Article 48 does not authorize the use of an initiative petition to set taxes in the Constitution, outside of the Legislature’s control. Never in the history of the Commonwealth has a tax or a tax rate been set in the Constitution. 

“Here is the bottom line,” concluded Anderson. “On five occasions since 1915, Massachusetts citizens have considered ballot initiatives that would empower the Legislature to establish a graduated income tax and the citizens rejected all five.

“In this latest attempt, the proponents have decided not to propose authorizing the Legislature to adopt a graduated income tax. They have decided to impose it through the initiative petition, amending the Constitution. As a key element of the strategy, they have logrolled it by including two attractive subjects that would receive the funding. And they have limited the set of people who would be impacted. This would set a bad precedent for Massachusetts, which will likely lead to future amendments to the Constitution by other special interest groups. This time it is about those making over a million dollars, what’s next?”

Topics: Income Surtax, Election 2018, Taxation

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