As a service to my readers in Massachusetts, I semi-annually provide an analysis of the ballot questions that will be decided in the upcoming November primary. Massachusetts has a complicated process related to initiatives and referendums, which is actually governed by Article XLVIII of the Massachusetts Constitution.
Question 1 proposes to change the Massachusetts Constitution by adding a tax surcharge on income over $1 million dollars.
For reasons detailed below, I recommend voting “yes” on Question #1.
Why is this a Constitutional Amendment?
The first question that comes up is why this is a Constitutional amendment. A lot of citizens of the Commonwealth don’t realize that “progressive” or “graduated” taxation is prohibited by Article XLIV of the Massachusetts Constitution, which provides in relevant part that income taxes may be “levied at a uniform rate throughout the commonwealth upon incomes derived from the same class.”
That’s right, my friends. The “progressive” state of Massachsutts cannot levy a “progressive” income tax, as the federal government can.
Several previous efforts to change this via constitutional amendments have not been able to change this. Specifically, initiatives filed in 1962, 1968, 1972, 1976, and 1994 all failed to amend the Constitution.
And that is why this proposal has had to be presented as a constitutional amendment.
Haven’t we been here before?
Some of you may be thinking that we’ve been here before. And you wouldn’t be incorrect. Almost the identical idea was proposed a mere four years ago, back in 2018, but did not make the ballot because of a challenge before the Supreme Judicial Court. To understand that challenge, let us review a little bit of background:
The initiative and referendum process in Massachusetts is governed by Article XLVIII of the Massachusetts Constitution, added to our Constitution in 1918, and it sets out some very specific limits on what can be in a proposed initiative or referendum. One of those limitations is that you cannot have two unrelated items to be part of the same question.
You cannot, for example, bundle an item that would be very popular in Massachusetts, such as reducing the sales tax, with a completely unrelated item that would not be very popular, such as the re-imposition of the death penalty, on the same question. And this makes sense. You don’t want the voters confused or split by unrelated items.
Well, back in 2018, a group of voters challenged the Attorney General’s certification of the Millionaire’s Tax by claiming that the two pieces of it — (1) the piece that imposed the tax itself, and (2) the piece that required spending the money on education and transportation — were not sufficiently related. In a hotly-disputed decision, Anderson v. Attorney General, the Supreme Judicial Court agreed.
Now the proposal is back in nearly identical form (see below) but — for reasons that no one seems to have explained — this time its legality has not been challenged. It’s just four years later, that’s all.
|(2018)Amendment Article XLIV of the Massachusetts Constitution is hereby amended by adding the following paragraph at the end thereof:||(2022)Article 44 of the Massachusetts Constitution is hereby amended by adding the following paragraph at the end thereof:-|
|To provide the resources for quality public education and affordable public colleges and universities, and for the repair and maintenance of roads, bridges and public transportation, all revenues received in accordance with this paragraph shall be expended, subject to appropriation, only for these purposes. In addition to the taxes on income otherwise authorized under this Article, there shall be an additional tax of 4 percent on that portion of annual taxable income in excess of $1,000,000 (one million dollars) reported on any return related to those taxes. To ensure that this additional tax continues to apply only to the commonwealth’s highest income residents, this $1,000,000 (one million dollar) income level shall be adjusted annually to reflect any increases in the cost of living by the same method used for federal income tax brackets. This paragraph shall apply to all tax years beginning on or after January 1, 2019||To provide the resources for quality public education and affordable public colleges and universities, and for the repair and maintenance of roads, bridges and public transportation, all revenues received in accordance with this paragraph shall be expended, subject to appropriation, only for these purposes. In addition to the taxes on income otherwise authorized under this Article, there shall be an additional tax of 4 percent on that portion of annual taxable income in excess of $1,000,000 (one million dollars) reported on any return related to those taxes. To ensure that this additional tax continues to apply only to the commonwealth’s highest income taxpayers, this $1,000,000 (one million dollars) income level shall be adjusted annually to reflect any increases in the cost of living by the same method used for federal income tax brackets. This paragraph shall apply to all tax years beginning on or after January 1, 2023.|
Doesn’t Massachusetts have a budget surplus?
Yes, the Commonwealth has a budget surplus in this fiscal year. But we had a budget deficit just a few years ago, when the pandemic hit. Budgets are dynamic.
But we also have very serious underfunded infrastructure, which we need to improve. Start with the MBTA. Anybody who knows anything about the MBTA knows that they have been underfunded for years and years. In fact, back when I worked for the Senate Ways & Means Committee in the early 1990s, we identified the MBTA as one of the five areas of state government that was threatening to “bust” the budget. It still is.
Then there are bridges and dams. By last count there are 644 structurally deficient bridges and at least 40 problematic dams in Massachusetts. Fixing those will be very expensive. And that says nothing about roads and state highways, plenty of which also need repair. Or trains, buses, ferries, and infrastructure for biking and pedestrians.
I personally believe that education is better-funded than transportation infrastructure, but education could use some more money as well.
For those of you actually interested in the details of the Massachusetts budget, I can recommend the site maintained by the Massachusetts Budget and Policy Center. They also have an FAQ page on the details of the amendment.
Who would have to pay this money?
In the advertising against the amendment, there are plenty of farmers and small business people featured, each of them maintaining, in essence, that they would get screwed by the amendment. I don’t think so. But let’s consider the following examples:
- Suppose you bought a house for $500,000 in 2000 and have now sold it for $1.2 million, do I now have to pay the tax? The answer is no, because your gain on this transaction is only $700,000.
- Suppose you bought a house for $500,000 in 2000 and have now sold it for $1.7 million, do I now have to pay the tax? The answer is that you would have 5% on the first million of your gain, and 9% on the remaining $200,000 gain.
- Suppose you bought a farm for $1 million in 2000, and have now sold it for $2.7 million, what portion would you have to pay the extra tax on. The answer is that the 9% rate would apply to the $1.7 million gain that is over $1 million.
- Suppose you created a business in 2000 and are now selling it for $5.7 million. You would have to pay the 5% rate on the 1st million, and the 9% rate on the additional $4.7 million rate.
There are two things to note about this. First, even without the extra tax, you’d still be paying 5% on your gain regardless. Second, if you made $4.7 million in profit, you’re doing pretty darn well, and you can afford the extra 4% on that gain.
Seriously, that’s not going to kill you. Or send you to the poorhouse.
Does this have to be used for Transportation and Education?
The answer to this one is “yes and no.” From a purely legal perspective, the answer is no. From a political perspective, the answer is quite clearly yes.
Why do I say this?
Because historically, the legislature has been very hesitant to change laws that have been approved by the people through an initiative petition.
Let me give you two examples:
- Chapter 62F — the chapter that makes it possible that Massachusetts taxpayers will get a refund this year — was enacted by the people in 1986. It provides that total annual state tax revenue can only grow by a certain percentage based on total state wage and salary growth, or the excess has to be returned. Although the legislature could have modified or repealed this law a long time ago — nothing legally prohibits the legislature from amending or repealing an initiative-enacted law — they have not.
- Proposition 2½ – the chapter that limits property taxes to 2.5% of valuation, and property tax increases to 2.5% annually. Again, the legislature has not modified or repealed this law, which is now 42 years old.
In both cases, the reason the legislature has not repealed or amended the law is because of the political blow-back that would result.
The legislature has, on occasioned, tinkered with people-approved amendments, such as when they changed the rules on a voter-approved animal welfare law to avert an impending egg shortage in Massachusetts.
I should note that, if approved, the amendment would not resolve all of the issues. The legislature would still have to enact something that deals with the mechanics of how to implement the “Fair Share” amendment. Most likely, they would establish two funds — let’s say the Fair Share Education Fund and the Fair Share Transportation Fund — and specify the portion of the extra revenue that would be deposited in each fund. The enacting statute for those two funds would then have to specify the uses to which the fund could be put.
In any case, for the reasons detailed above, I recommend voting “yes” on Question #1.
So this includes capital gains?