Report says millionaires tax would raise $1.3 billion
Tufts center estimates 500 wealthy families would leave Massachusetts
A new report released by an independent think tank found that passing the so-called “millionaires tax” would raise an estimated $1.3 billion annually beginning in 2023.
The number is lower than some previous estimates and assumes that around 500 high-income families would move out of state.
The report, written by Evan Horowitz of the Center for State Policy Analysis at Tufts University, said the new revenue would be raised in “a highly progressive way likely to advance racial and economic equity.”
It provides an independent look at a debate that has already produced volumes of competing research from players on both sides of the argument. It comes as advocates and lawmakers are expected to take the final steps necessary to put the question on the November 2022 ballot.
Proponents of the tax say Massachusetts needs more money to pay for crumbling roads and bridges and to invest in childcare and public education. They see the tax as a way to get wealthier taxpayers to pay their “fair share” in a state with a flat income tax rate.
The liberal-leaning Massachusetts Budget and Policy Center, which supports the tax, has said a top 9 percent tax rate would put Massachusetts in line with some other states. The conservative-leaning Pioneer Institute, which opposes the tax, warns that it would harm small business owners.
The Department of Revenue estimated that the tax would raise around $1.9 billion in 2019 – but that estimate, which was already being used during debate in 2017, is now years out of date. The conservative-leaning Beacon Hill Institute, in a 2021 study, pegged the amount that would be raised at $1.2 billion.
Horowitz’s new report finds that the surtax would apply to 0.6 percent of Massachusetts households annually, around 21,000 households. Very few of these households would be hit by the tax every year since many families that exceed incomes of $1 million do so only once, for reasons like selling a business or a long-term investment.
He writes that the surtax could raise $2.1 billion if it does not affect high earners’ behavior. But because a small number of millionaires would likely move (he suggests around 500 families) and far more would use legal tax avoidance schemes to get around paying the tax (things like shifting economic activity out of state), that would cut the revenue by 35 percent, to around $1.3 billion.Horowitz discounts research suggesting that the tax would blunt economic activity in Massachusetts, arguing that the change is small enough that it is unlikely to drive large shifts in behavior, particularly since it would have only a limited impact on businesses. He is also skeptical of claims that the money would create a sea change in state spending on education and transportation, noting that because money is fungible and subject to legislative appropriation, the new revenue could simply displace money that is already being spent in these areas.
He did suggest that the change would have a positive impact on racial equity, since nearly 90 percent of $1 million earners in Massachusetts are white, while state services that benefit from the money would likely help lower income individuals and people of color, because of the progressive nature of state spending.