MASSACHUSETTS VOTERS in November will consider a constitutional amendment that would impose an annual 4 percent surcharge on incomes over $1 million.  The debate over the surcharge and the merits of the two common types of income taxation—graduated and flat—will likely focus on the “fairness” of tax rates and the “ability to pay.” A related debate will also flare:  whether the amendment will drive higher-income taxpayers out of the Commonwealth and into the arms of low-or-no-income-tax states.

Some opponents of the “millionaire tax” argue that high earners are deeply sensitive to tax rates and that even earners under the proposed $1 million threshold will fear that, with the flat tax wall breached, a further graduation of rates will follow.  Opponents also argue that, even if high-income residents stay put, their money will not; rather, it will fly on the dauntless wings of capital to friendlier climes.  As the voters ponder this “migration” issue, they should note how past migration within Massachusetts by wealthy Massachusetts taxpayers led to the current “flat tax” scheme erected in 1915.

Amendment Article 44 of the Massachusetts Constitution, adopted in 1915, provides:  “Full power and authority are hereby given and granted to the general court to impose and levy a tax on income, in the manner hereinafter provided. Such tax may be at different rates upon income derived from different classes of property, but shall be levied at a uniform rate throughout the Commonwealth upon incomes derived from the same class of property.  The general court may tax income not derived from property at a lower rate than income derived from property, and may grant reasonable exemptions and abatements.”

This amendment authorized, among other things, the first statewide income tax, while barring graduated rates.  It  responded in part to the intrastate migration of wealthy Massachusetts personal property taxpayers in the mid-to-late late 1800s and early 1900s.

The history of this intrastate taxpayer migration is summarized in the dissenting opinion of Justice Robert Cordy in a case decided by the Supreme Judicial Court in 2004.  In Peterson v. Commissioner of Revenue, the court held that Article 44 foreclosed the Legislature from establishing different income tax rates for different portions of the same calendar year.  Cordy’s dissent explains some of the historical forces that drove the adoption of Article 44.  Before the amendment in 1915, the principal taxes collected in the Commonwealth were local taxes.  The then-existing Constitution required that each municipality apply a single rate of taxation to the total value of real and personal property of each taxpayer within the municipality.  Tax rates could differ from town to town, but not within each town.

As the nature of property changed in the mid-to-late 1800s, however, issues arose.  According to a 1930s tax treatise by Philip Nichols, before that time, “all the personal property of each individual was tangible and visible and kept in the town in which he dwelt.”

The rise of “intangible” property—such as stocks, bonds, and other financial instruments— changed that.  Intangible property and income derived from it became hard to trace.  As a special commission of the Legislature explained the history in 1969:  “The burden of the tax on intangibles alone furnished strong motive for concealment of intangible property, and also for transfers of domicile from Boston and other cities to smaller communities having lower tax rates and less efficient assessors.”

As Justice Cordy noted, “because intangible property was taxed at its owner’s domicile, the wealthy could lower their tax burden by shifting their domiciles from cities with high tax rates and sophisticated assessors to homes in rural communities with low tax rates and less aggressive and knowledgeable assessors.  As a consequence, tax rates in the cities grew even higher (to make up for the lost wealth), and tax rates in rural communities moved artificially lower, magnifying the differences in municipal revenues.”  Nichols noted that this intrastate migration had left “hardly a fifth of the personal property in [the] Commonwealth . . . subject to taxation.”

Joseph Garland of Gloucester painted a more vivid portrait of this flight of capital in his colorful book, The North Shore:  A Social History of Summers Among the Noteworthy, Fashionable, Rich, Eccentric and Ordinary on Boston’s Gold Coast, 1823-1929.  He noted that “the practice of the wealthy, most of them from Boston, of evading the general personal property tax in their winter quarters by taking up legal residence in the outlying suburbs, where the rates were incomparably lower, started in Nahant in 1870, and there was not much the Boston assessors could do about it.  The dodge was perfectly legal and, because valuations [of personal property] were based on demonstrable holdings, tangible property such as real estate carried the burden while the elusive stock certificate on which the greater wealth was based escaped any detection at all except by the most sophisticated city assessors.

Tax collectors in the small suburbs and resorts like Nahant were only too happy to provide havens for the rich commuters and summer residents, assessing them at face value for what they were permitted to see with their own eyes, leaving the hidden intangibles to the owner and his conscience.”

Harvard economist Charles J. Bullock, in his 1916 history of Massachusetts taxation, likewise noted that “personal property [in the post-Civil War era] was rapidly migrating from Boston, and between 1869 and 1873 not less than $13,900,000 of taxable personal estate was removed from Boston to eight suburban towns and Newport, Rhode Island.”

Through the same decades, many questioned whether it was wise for cities to place any reliance at all on the taxation of such intangible personal property, given that—as one political economist put it—it “floats about from place to place with ease.” Noam Maggor, in Brahmin Capitalism (Harvard, 2017), quotes a report of the Special Commission on Taxation endorsed by then-Boston mayor Nathan Matthews in 1891, which criticized the existing tax on personal property:  “Boston and Massachusetts are both avoided like a house guarded by a savage dog.  It is true that one might not be bitten; but it is pleasanter to go where the dog is not so fierce.  Our system is a scarecrow and an efficient one.”

In the wake of this history, the voters adopted Article 44 in 1915.  Their authorization for a statewide income tax and geographic uniformity of rates sought to address the past migration.  Indeed, the Nichols treatise cited by Justice Cordy states that the purpose of the constitutional amendment “was intended to enable the state to impose a tax on intangible securities which was capable of enforcement with some degree of equality without driving capital out of the state.”

Proponents, opponents, and neutral analysts of the 2022 ballot question offer different predictions about the risk of taxpayer migration.  A January 2022 study by the Center for State Policy Analysis at Tufts University found:  “Some high-income residents may relocate to other states, but the number of movers is likely to be small,” between 250 to 1,000 million-dollar earners,” likely reducing the expected revenue from the new tax “by around 5 percent and costing the state roughly $100 million in 2023.”

In 2021, the Pioneer Institute published a white paper entitled:  “Do the Wealthy Migrate from High-Tax States?”  The paper found that the “[a]ffluent taxpayers are responsible for an outsized proportion of state tax revenue,” and that the “data show a strong correlation between state taxes and migration.”  Also in 2021, the Beacon Hill Institute published “The Economic Effects of a Massachusetts Millionaire’s Tax,” which found that ‘[t]he proposed surtax would decrease the demand for labor services and the quantity of labor services supplied, the latter through a reduction in labor-force participation and out-migration of high-income workers.”  Others have noted that the 2018 federal law limiting the income tax deduction for state and local taxes to $10,000 may further skew patterns of migration.

In the coming debate this fall,  an income tax surcharge—not a personal property tax on financial instruments—is at issue.  But, as voters weigh predictions about a possible “flight of capital” from Massachusetts, they might recall that taxpayer flight was itself a catalyst for the existing “flat” income tax rate required by Article 44.  The history of Article 44 shows that 19th-century Massachusetts taxpayers often voted with their feet.

Thomas A. Barnico teaches at Boston College Law School.  As an assistant attorney general, he argued the Peterson case.  He is the author of a recent novel, War College, set in the Vietnam War era.