Extra Taxes on the Wealthy?

Investment Analysis Clubs Macro Economic Trends and Risks
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As a MA resident and registered voter, I’ve been doing some preparation on the questions on the upcoming November ballot. Question 1 proposes the following:

This proposed constitutional amendment would establish an additional 4% state income tax on that portion of annual taxable income in excess of $1 million. This income level would be adjusted annually, by the same method used for federal income-tax brackets, to reflect increases in the cost of living. Revenues from this tax would be used, subject to appropriation by the state Legislature, for public education, public colleges and universities; and for the repair and maintenance of roads, bridges, and public transportation. The proposed amendment would apply to tax years beginning on or after January 1, 2023.

https://www.sec.state.ma.us/ele/ele22/information-for-voters-22/quest_1.htm

At first glance I thought this amendment would be a great idea as we have all talked here about how many wealthy folks are basically OK with higher taxes. However, this bill, the way it is written seems to be somewhat slightly underhanded. See the bold portion in the above text. It says that the extra funds from this tax would be used “subject to the appropriation by the state legislature” - there is the kicker!! IOW, the state can collect the tax, but then slide that money over to any budget category that it wants - or more likely, would reduce funding for education and transportation and appropriate just these funds for those purposes.

This all just seems slimy to me and another reason why I really don’t trust politicians as far as I can throw them. On the one hand, this bill seems like a great idea, but that one phrase written into this constitutional amendment allows the legislature to do anything that they want with this extra tax income.

Although this is a MA ballot question, I think this has Macro impact in a couple of ways:

  • Many agree that wealthy folks (> $1MM / year in income) should pay more in taxes (Warren Buffett even agrees)
  • Some (many) laws are written to sound good on the surface, but when you rip apart the details they may not have the intended consequences that voters thought they would get
  • Our legislators MAY be in the pockets of wealthy individuals who influenced the writing of this constitutional amendment the way that they did, so that it appears that the legislature is being responsive to the “little people” when in actuality, they wrote the law in such a way that it causes angst among the voters and the bill gets rejected - thereby relieving the wealthy from this additional tax. (Brilliant!)
  • Many voters don’t even do the “due diligence” to study the facts and potential outcomes from ballot questions, so they may even choose the “In My Pants” option while in the voting booth (there you go @HohumYNWA !)

We are starting to get flooded with mail and phone calls regarding this upcoming ballot question and I’m not sure which way I’ll vote. I’m basically in agreement that most folks making > $1MM / year in income would be OK with this added tax - but OTOH, I really don’t trust our law makers to use the funds towards what they are supposed to be used for.

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Good Luck to us all this upcoming November!!
'38Packard
– I’m not a lawyer, nor a lawmaker

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Voting against richer people paying more taxes in times of economic stress, in the chance those taxes MIGHT not be as effectively used as possible, does not strike me as a strong argument. The same criticism could be made of any money raised by taxation under any tax-raising legislation. Why would it matter now?

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At least in Michigan, most state revenue goes into “General Revenue”, which the legislature and Gov then allocate among the different categories of spending. In Michigan, “General Revenue” includes income taxes, sales taxes and a variety of other non-earmarked sources. Earmarked revenue is things like fuel taxes and vehicle registration fees, which go to transportation infrastructure, and some slice of lottery and casino revenue, which is earmarked for education.

The shell game that the (L&Ses) in Lansing have played, for years, is to increase an ear-marked tax for something the people support, like education or transportation infrastructure, then withdraw an amount equal or greater, from that spending account, that had been coming from general revenue, to cover another tax cut for the “JCs”. Michigan fuel taxes were increased a few years ago, to raise $300M/year for the states notoriously underfunded road maintenance. At the same time, $300M from general revenue was withdrawn from road maintenance to cover a tax cut, so not net improvement in road funding. Then the “JCs” were gifted the repeal of a property tax they had paid to cities, with the state saying money would be diverted from use tax revenue to make up the lost revenue to cities. Of course, it was a deep dark secret, what was being defunded to free up that use tax revenue to give it to the cities, to make up for another handout to the “JCs”.

I don’t see anything nefarious in which fund the state puts that tax revenue. The argument is always about how that money is spent.

Steve

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I lived on Boston’s North Shore for 5 years and worked in town near Back Bay. I understood the affluence in the area. Still, I must be naive, as I would not have guessed that a 4% tax on Mass. individuals with income over $1MM would generate $2 Billion in annual revenue. A lot of high income earners.

As Massachusetts expects 2022 revenue collections (state only, no local) of $41 Billion, that $2B represents less than 5% increase to state revenue. I think an argument could be made to drop the increased tax threshold to income over $500,000. That may provide a meaningful impact to the state’s budget. Would like my state to place this on a ballot.

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Tax hikes, particularly on those with wealth, will result in increased work-arounds, leading to more regulations and to more sophisticated work-arounds. Administering the new surtax will get expensive. Net tax revenues will fall short of projections. Tax attorneys, financial planners and insurance companies are the real winners.

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This seems pretty benign, really. It is the legislature’s job to decide where to spend tax money. And that’s all that statement really said.

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Ahh but @syke6, did you notice that the text of this constitutional amendment states that the funds are to go towards "Revenues from this tax would be used, subject to appropriation by the state Legislature, for public education, public colleges and universities; and for the repair and maintenance of roads, bridges, and public transportation.

The issue is that the preceding phrase “subject to appropriation by the state legislature” actually means that they don’t HAVE to spend those funds on education and/or public transportation.

The MBTA (our subway system in Boston) had two entire lines closed down for a month (mid-August to mid-Sept) for repairs. That was a major inconvenience for folks that use the “T” for their commute to and from work.

We need more investments in our aging public transportation and I’m not sure this bill will actually achieve that.

'38Packard

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Syke

I agree. It all ends up being the general fund in practice. It relieves other monies for other spending.

The heart of it is what sort of life style does MA want? What sort of industrial base does MA want?

I think is is funny for a few die hards making less than $1 million to object. Like the lottery might pay off one day.

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I get that part. But let’s flip this around. Let’s say these monies were required to go to those things. Great, but the legislature could take monies currently being spent on those things and spend it on something else. So it still comes down to what the legislature wants to spend money on. It is called backfilling.

You see it a lot when people are trying sell a state lottery. They say something like all the money will go to schools, which it technically does. But it doesn’t necessarily make the schools any better funded.

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I get it too. Let’s face it, we peons are screwed either way :wink:

'38Packard

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Your skepticism is only half way there, IMO. Back when I used to have a land line I got at least two political survey calls asking about a ballot proposition. The question, basically, were about how to word the couple of sentences describing the ballot measure to get you to vote for it. In essence, even if the words aren’t binding, what should we say we might spend the money on in order to get you to vote for it.
They weren’t subtle. At least a dozen questions, does wording A or B make you more likely to vote yes. How about B vs C. C vs D.

Mike

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How are we screwed? In relative terms over time our taxes will go down and inflation will be tamed. The taxes are going up on the non peons. That is where the taxes come from or they come from the peons. Then we are screwed.

The wealthy are never really screwed. Think that over. LOL

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Right. That is the shell game the (L&Ses) in Lansing always pull. Tax increases on the rest of us, regardless of stated purpose, always seem to wind up as tax cuts for the “JCs”.

Steve

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Steve,

This is a tax hike on the JCs supported by a majority of JCs. MA is a thinking breed. This means the unJCs or nonJCs have less inflation trickling down in MA longer term. The more the wealthy can buy the higher inflation on luxury goods goes. Taxing them puts a check on inflation.