Claims for millionaire tax don’t add up
Would trigger job losses, cutting into revenue gains
AS IT MEETS in a constitutional convention on Wednesday, the Massachusetts Legislature has another opportunity to approve the so-called millionaire’s tax, paving the way for the measure to appear on the November 2022 ballot.
This latest campaign to make the state’s flat tax into a graduated income tax would impose a 4 percent tax surcharge on incomes of $1 million and more. Six past efforts to impose a similar graduated income tax scheme have failed at the ballot box and, more recently, the state’s highest court rejected it as “unconstitutional.”
However, past failures and even the will of the voters have not deterred the proponents. Unlike every single past attempt, this latest attempt is not derived by citizens, but by lawmakers, who want to seek to change the protections in the state constitution and be able to tax at will. While they claim the measure is about raising taxes on high-income earners, what they are attempting to change is the constitional protections that are enshrined in the state constition to protect taxpayers from unequal taxation.
Proponents of the millionaire tax make two central claims. First, they argue that the tax will impinge only on the Commonwealth’s highest earners while leaving everyone else unaffected. Second, they promise that the revenue generated from the next tax will raise some $2 billion annually, all of which will go toward spending on education and infrastructure. Both claims are false.
Massachusetts is already suffering from net outmigration, a problem that the millionaire tax will exacerbate. Other workers will retire earlier or simply cut back on their work hours. Thousands of businesses will reduce their investment and hiring as the after-tax return on investment falls. The resulting shrinkage in the state economy will adversely affect taxpayers at all income levels and reduce the amount of revenue that the tax will yield.
In a study released today sponsored by the Fiscal Alliance Foundatio, we used the Beacon Hill Institute’s State Tax Analysis Modeling Program (STAMP) to determine that the tax would drive 4,388 working households (households with at least one employed person) out of the state in its first year of implementation. Private sector jobs would simultaneously fall by 9,329. Because income taxes would rise, disposable income would fall by $963 million, and state economic output would fall by $431 million.
Because of this shrinkage in the economy, state tax revenues would rise by only $1.231 billion, not by the promised $2 billion. This should be a clear warning to taxpayers, who should ask themselves where will the rest of the taxpayer money come from in order to satisy the spending by State House politicians. That would be you, of course.
As for the promise to dedicate the revenues raised by the tax to education and transportation, that, too, is misleading since there is no stopping the Legislature from diverting revenue already raised for those purposes to other programs.When we consider the actual effects of the millionaire tax, the case for implementing it becomes unconvincing. The state would get a very low return on its experiment with a graduated tax. Another billion or so dollars, when compared to the $45.6 billion that the state would spend under the governor’s fiscal year 2022 budget, will mean very little. Revenue collections for fiscal year 2021 are already $4 billion ahead of last year FY 2020 and there are further questions to be raised about the desirability of lavishing more money on state transportation without serious attention to its notorious ineffiiencies or on the already-well-funded education sector. Let’s leave the state constitution as it is, and avoid burdening the state economy, still in recovery from the pandemic, with another tax.
David G. Tuerck is president of the Beacon Hill Institute and Laurie Belsito is policy director of the Fiscal Alliance Foundation.