The constitutional amendment that imposes a “millionaires’ tax” will likely be on our ballots in November, 2018, along with the candidates for governor and Congress.
You probably already know that this amendment would levy an additional tax on any person or couple who makes more than a million dollars in a year. We all pay a federal income tax, which varies depending on many factors. We also pay the state 5.1 percent of our income, no matter whether we make $50,000 or $500,000. We cannot claim many deductions on our state income tax, as we can when filing our federal taxes.
If this amendment passes, in the year 2019 anyone making more than one million dollars would pay an additional 4 percent on the amount that exceeds one million.
Supporters estimate the new tax would affect about 20,000 people and predict that the additional revenue would reach about $2.2 billion—all to be used for education and transportation.
Those who support the measure say that “to whomsoever much is given, of him shall much be required.” Those who oppose the measure say it would hurt the state’s business climate and cause the wealthiest among us to move to another state. While Gov. Charlie Baker says he’s against more taxes in general, I bet he’s secretly hoping this amendment will pass, giving him some wiggle room in a budget that never seems to be enough.
While I understand the basics about this amendment, I’ve never seen an example of how an actual family would be affected by it. So I’ve created one.
Joe and Sally are in their forties and work in real estate development and finance. Together they will make $2 million in state taxable income for the year 2019. They live in a nice but not lavish house, and they have no mortgage. Their second house in Maine also has no mortgage. Their kids are in private school, since I’ve placed them downtown, and they decided to forego the uncertain public school process. Those kids are expected to be responsible, do well in school and not give their parents grief with drugs or any other problems.
Since they live downtown and don’t want the hassle, they have only one car, again nice, fully paid for, and Joe has a driver he can call on when he needs to get around. They have health care through their work, and they don’t worry much about spending, but they are not profligate. Their kids will be loan-free in college and throughout graduate, medical or law school, should they choose to go.
I’m thinking they might be typical for people in their income bracket, since not every rich person desires expensive jewelry, aspirational handbags and gold-plated fixtures, especially in New England. I’m thinking they are responsible people who want to pay their fair share. Of course, fair is subjective.
So how would this amendment, if passed, affect them? They would still pay Massachusetts 5.1 percent on their $2 million income or $102,000. In addition, they would pay an extra 4 percent, or $40,000, on the million dollars more than the first million.
How much will they notice forking over an extra $40,000? Will it reduce their standard of living? Will it cause them pain? Will it prompt them to move to New Hampshire and commute long distances or change jobs? Will it hurt Joe’s real estate development plans or Sally’s finance business? Will it seem worth it since they may get better T service downtown and better roads and their businesses could prosper more since their future employees, Massachusetts kids, could be better educated because of the extra resources for education that this bill promises to provide.
I don’t know the answers to those questions. I imagine paying an extra 4 percent on incomes over a million will play out differently for each family, depending on their outlook on life. It will be interesting to see what happens.
[hr]Downtown View is a column by newspaperwoman Karen Cord Taylor who founded The Beacon Hill Times in 1995 and served as its editor and publisher until late 2007. She also founded and served as editor and publisher of the Charlestown Patriot-Bridge and The Back Bay Sun weeklies. Karen now works from her home in downtown Boston and blogs at BostonColumn.com. Please feel free to leave responses in the comments section below.
Wouldn’t it be deductible from their federal income taxes? A quick google search sugggsts it would.
Not with the potential new tax plan being discussed
Every time I read this woman’s column, I am infuriated. She is delusional about so many subjects but yet gets to pontificate on every topic. Why is she the only author accepted here? Her fantasy family is just that, her depiction of the finances is clueless, and once again she misleads the readers by confusing facts with her version of fairy tales!
Actually, the example given makes perfect sense. Taxpayers would pay 4% on income over $1 million. That may not sound good to you, but to most people, that seems fair and part of the price of success.
There are many voices on here, including yours. The only fairy tale is your pro-Trump penthouse view of the world.
“price of success.”
Please define.
I wish one of the fairy tales had a happy ending! Seems more like a steady stream of personal gripes or maybe made up ones.
It is not so easy to compose an essay or write an article. I give Karen credit for sharing some of her thoughts with us…..more so for getting it down on paper in an interesting read. She’s been around…..don’t dismiss her
Interesting read. $40,000 additional may not sound like much but let’s not forget the nearly 40% in federal taxes that this hypothetical couple would be paying. $800,000 in fed tax, $102,000 in current MA state tax, plus an additional $40,000 in new taxes. $2 million quickly becomes $1,058,000 after taxes. Still a lot of money, no doubt, but you could see where state income tax rate increases will begin to scare people away from MA.
Maybe not scare them away, but force them to consider how much additionsl they need to cover the costs of living and paying taxes in Massachusetts, particularly in Boston. The overall cost of doing business in Mass puts local companies at a disadvantage. It puts people who are here already in the position of wanting to look elsewhere as they see the new guy coming and making more than them.
Just to add, we have not mentioned the exorbitant real estate taxes that this supposedly debt free couple pays.
The first thing the couple does is cut back on all their generous donations and neighborhood support.
The author should also consider the 60-70 year old couple with a house or condo in Florida. By increasing marginal taxes on top of the current income, estate and property taxes you incentive that couple to establish their residence in Florida and their secondary address in Massachusetts instead of visa versa. By flipping their primary residence to Florida they get out of the winter and they take their income tax to zero. When they do that the income tax they pay in Massachusetts doesn’t go from $100,00 to $140,000 it goes from $100,000 to $0.
Many millionaires (income not wealth) are not making that amount every year. They have a one off event like selling a company and cashing in on options as ordinary income. If you are going to sell in 3-5 years it might be worth not renewing the office lease in Boston and shifting up to New Hampshire. At the other end people nearing the end of life with taxable estates can shift to any number of states and leave more to their heirs.
Millionaires (income) with kids in school are less likely to move. Journalist who like an urban intellectual lifestyle are not likely to move. People who choose high income careers or amass wealth and have the ability to shift their primary residence are much more inclined to look at the dollar impact.
Also income taxes are volatile. The people paying it year to year is fluid and in recessions, when government is strapped, the income of these people generally drops dramatically. California is grappling with the unstable tax base caused by over reliance on income taxes.
In terms of proportionality the top 1% of income earners ($430,000 adjusted gross income in 2013) earn nearly 20% of the income and pay nearly 40% of the income tax. The top 25% of income earners pay nearly 90% of the income tax.
Income taxes then are a very unstable tax base that declines at the wrong times and we already have a highly disproportionate tax structure where the top earners pay a higher percentage of income taxes than they earn as a percentage of the total income pie.
If you want to tax rich people the income tax is pretty well played out. The better way to raise money on the rich – if that is your goal – is a wealth tax. The top 1% in income was $430,000 a few years ago and the top 1% in net worth was $9 million. So, for example, the Buffett Rule to increase income taxes would increase Warren Buffett’s taxes a few tens of millions of dollars a year. A wealth tax of 1.5% annually would increase his taxes nearly one billion dollars a year. The wealth tables are much more stable than who makes a million dollars in annual income. The wealth tax would decline less than income taxes in a recession. I am not advocating a wealth tax. The point is merely that people can easily avoid income taxes in most situations where they have that much earned income. Bernie Sanders has floated and France has a wealth tax. People left France in the face of a wealth tax. Not a high number but at the margins it matters. Plus businesses tend to view the level and direction of taxes in locating their offices. See the GE move to Boston from Connecticut. Florida real estate agents ought to fund a PAC to lobby for higher income and estate taxes in Massachusetts or for a wealth tax.
I think the most common side affect is moving their residence to another state and making Massachusetts their second home. These income levels have the wherewithal to state shop. The 6 month resident requiement is hard to track and harder to prove. You are correct that most millionaire income occurences are a one time only. I recall that most one percenters are transient. Only 20% of that 1% are repeat offenders (if you call high incomes an offense). If you consider that someone who does well and sells a small business, their one time occurrence in the millionaire club imight actually be their retirement. Wealth taxes will have the same move out problems that income taxes do, except many people who have wealth, saved it and paid tax all the way. Again you are taxing retirement assets and will have the same affect of reducing future income that withdrawals from plans have.
And as for Buffet, keep in mind much of his wealth is derived by depriving others. As in the case of Shaw Industries, cutting jobs and slashing health benefits puts money directly into his pocket. If it were up to him, there would be no employee benefits and you would be forced to deal with Geico
Echo-chamber bubble thinking. Look at the state revenue problems of CT, NJ, MD, IL, and emerging problems in high tax NY, CA etc. due to “millionaire tax. If you think any large companies will come to MA if a millionaire’s tax is enacted, forget about it – the execs making the decision to move will see their personal tax rate skyrocket to one of highest in world, and decline, no matter how many corporate tax breaks are given.
Also suspect there may be some cap on local tax deductibility in a proposed new federal tax overhaul, as low tax states are chafing at subsidizing the free spending “progressive” states. May not be eliminated entirely, but I would not bet there won’t be some limits established.
Finally, and I say this cautiously, FL, with no state income, inheritance, estate taxes, is great. Fees are high so you pay for what you use. When I miss the Northeast, it is a short 3 hour plane flight away. I have closed all my northern business corps and reincorporated in FL. I say this with caution, because the last thing we want are Northeast free-spenders coming here and messing the state up the way they messed up the Northeast, IL, and CA.
If the tax changes go through on the federal level, state tax deductions will be eliminated. This will give non-income tax states further advantage. However, it might make state legislators more responsive to their public. High income earners are a minority in every state and a pretty easy target. A post above mentioned that 90% of the state revenue comes from the minority. Make “them” pay their fair share is the mantra, but even if they pay 100% of the revenue that is a moving target because the revenue need is on an upward tragectory. The incomes will find a way to leave the state, but the pension liabilities and debt won’t. One thing about Illinois that is curious to me, is that people love their state come hell or high water (I saw the high water test last weekeend). People in the northeast are more likely to pull up stakes
“The last thing we want are Northeast free-spenders coming here and messing the state up the way they messed up the Northeast, IL, and CA”.
Can’t believe you wrote this.
Many of the states and regions referenced above are in the throws of bankruptcy. It’s not a question of if, its just a matter of when. And this all in a market environment with all time highs…..when the next recession hits (and it will), see how many more states find themselves unable to service their payables. The “doers” do, and the “takers” take at the cost of the doers. This loop continues until the “taker” asks go just too far, at which point the house of cards start falling slowly at first….then very quickly. We’re better off balancing the budget in a responsible manner now, and getting our house in order in anticipation of more trouble. And strong businesses with a big presence in the state is one of the best ways of securing sound footing.
Consider the numerous MA proposals bidding for Amazons new headquarters. That deal is dead on arrival if MA once again becomes known as “taxachusetts”. They’ll look for a more friendly tax environment. It’s a slippery slope when the takers think they can just tax the doers to get what they want……
https://www.mercatus.org/statefiscalrankings
Compare this map to a red/blue state map after the past presidential election and see if you notice any similarities
What’s interesting is the states with the highest tax rates are below average, where the no income states are all average and above.
Sort of shows how debt heavy states have been backed into a corner. They need the tax revenue to pay the debt service, but find that increasing taxes, decreases growth opportunity. The legislature’s collective heads must be spinning. I can see why they want to take some money and get thrown in jail. Jail is the relief.
Heather – open your eyes. Look at the financial cesspools RI, CT, NJ, IL have become. Anywhere there are dem supermajorities in statehouses they spend, spend and spend some more. Eventually Socialist (being kind) Dems eventually run out of other peoples money. There are documented cases of millionaires pulling up stakes in NY and NJ and putting major holes in state tax receipts.
But, unfortunately yes, too many Northeasterners are like locusts. They destroy where they have been and move on (sort of like the Independence Day movie). You would be surprised at how many Mass retirees (on a Mass pension, no less) are down here. They are constantly complaining about no train service ( as if the MBTA is a paragon of efficiency), tougher to talk to someone in Tallahassee to grease skids, and the like. I tell them if they don’t like it, move the hell back to Massachusetts. They won’t be missed.
Train service? Don’t they realize the the whole state is just above sea level. Most of the places there are on slabs.
But worth considering once you’re too old to drive. But then again, those walkers aren’t good on ice.
Civil engineers are quite capable of dealing with high water tables. Every major city on either coast or on the Great Lakes has subways or highways “under water” as it were. That includes the Big Dig and every subway line in Boston. Same is true in NYC, Phil, DC, Chicago, SFO,LA.
Florida would not have a problem constructing rail. But no one wants the corruption and inefficiency rampant in large scale public sector transit systems that are found in the north. Remember, MBTA still stands for Mr. Bulger’s Transit Agency. His minions are still pulling down huge pensions from its fund, courtesy of the over-taxed MA tax and fare payer.
This is why “dynamic scoring” where the consequences of certain tax actions are comprehended, versus “static scoring” used by many states and the CBO (Congressional Budget Office) which missed Obamacare enrollments by over 100% is so important. Can the dynamic scoring factors (e.g. loss of revenue from citizens moving, increased growth from enhanced economic activity, etc) be manipulated. Certainly. But that’s why economics is an art, NOT a science.
Rachael: My knowledge on this subject is ‘next to nothing’, and I should refrain from commenting. At times I come to Karen’s defense – (my original statement). Your input is valuable for the community.