Pandemic changes Fair Share debate
Tax debate set to unfold amid surprisingly full state coffers
WHEN A COALITION of labor, clergy, and liberal organizing groups first proposed raising the tax rate on income over $1 million, the year was 2015. The income tax rate was 5.15 percent, the region was reeling from the disastrous performance of the MBTA the previous winter, there were around 15,000 people in the state earning over $1 million a year, and nobody had heard of COVID-19.
Fast forward six years, after an SJC ruling keeping the question off the 2018 ballot, and the so-called Fair Share amendment, or millionaires’ tax, is back and up for a final legislative vote next week. If it passes as expected, it will go before voters on the ballot in November 2022.
But the tax hike – which would impose a 4 percent surtax on income over $1 million – will be debated in a much different context this time around. The state income tax rate is lower – 5 percent – and there are more millionaires – around 18,000 — in Massachusetts. Most significantly, it will be under consideration as the Commonwealth is recovering from a year-plus-long pandemic that, in addition to causing sickness and death, has massively changed the state economy. Many businesses and individuals are struggling from forced business closures. Yet at the same time, state government is awash in cash due to higher than expected tax revenues and a massive influx of federal stimulus money.
Andrew Farnitano, a spokesperson for the Raise Up Massachusetts Coalition, which is advocating for the tax increase, said the pandemic called attention to the immense need Massachusetts has for increased funding for transportation and education. “It doesn’t change the underlying fact that Massachusetts for years has failed to invest in our transportation and public education systems, but it’s revealed the depth of that failure to invest in the systems that we need to make our economy work for everyone,” Farnitano said.
Marie-Frances Rivera, president of the liberal-leaning Massachusetts Budget and Policy Center, said the pandemic has “shown us in real time what the effects of chronic disinvestment in communities of color and low-income communities around the state actually look like.” She said there remains a need to fix crumbling school buildings and improve the transportation system.
Farnitano said the small restaurants and mom-and-pop shops that have struggled in this economy will not have to pay the tax, which will only fall on individuals who take $1 million in profit out of their businesses in a year. Those people, he said, “should pay their fair share to ensure we all have the resources we need to make the investments.”
But opponents of the tax increase counter that business owners are already struggling and increasing taxes will stymie business growth while making the state less competitive.
“In some senses, this amendment is reflective of a very different time and place,” said Chris Geehern, a spokesperson for Associated Industries of Massachusetts, a business trade group. Geehern said during the pandemic, one-third of small businesses closed, and those that were left reported decreases in revenue of around 44 percent.
“Thankfully, the economy now seems to be recovering, but these companies are still just trying to get back on their feet after being shut down or limited for a period of 14 months,” Geehern said.
Geehern said people who earn $1 million from a company often use the money to reinvest either in that business or in a new business. “There are all kinds of ways people use that money. It’s not, as proponents would have you believe, to sit on a beach somewhere,” he said.
Jim Stergios, executive director of the free market Pioneer Institute, a Boston think tank, said the pandemic also increased the opportunity for remote work. And in a small state like Massachusetts, moving a business over the border to New Hampshire or Connecticut does not necessarily involve developing a whole new base of customers or even employees. Giving Massachusetts a higher top tax rate than any of its neighbors, Stergios said, “is going to make us less competitive.” He said with 300,000 people still out of work, this is not the time to limit business growth.
“The government doesn’t need more money at all,” said Paul Craney, a spokesperson for the fiscally conservative Massachusetts Fiscal Alliance. “They have more money than they know what to do with.”
But Rivera countered that while the influx of federal money is vital to recover from the pandemic, those are one-time funds. There needs to be a plan in place to continue to support any investments made with the federal dollars once that money is used up. “Our fear is once federal funding dries up, how are we supporting people and communities?” Rivera said.
Rep. Jim O’Day, a West Boylston Democrat, who sponsored the amendment, said the pandemic does not change the argument in favor of it. There is still a need for an ongoing revenue source to fund education and transportation – and there are still wealthy individuals who should be paying their fair share of taxes, he argued.“Obviously there have been businesses hurt by the pandemic, but there’s also been others who have made a shitload of money during the pandemic,” O’Day said.
O’Day said the federal relief money will eventually dry up. “That’s the beauty of the Fair Share amendment,” he said, “that it will continue to be able to get those additional revenues from those who have for way too long not had to pay their fair share.”