The following is a summary of State Sen. Jason Lewis’ presentation from Dec. 20, 2018.
The millionaires tax, originally proposed by the Raise Up Massachusetts coalition, which represents community organizations, religious groups and labor unions, sought to apply a 4 percent surtax on income over $1 million of each Massachusetts taxpayer. Raise Up developed an initiative petition, the Fair Share Amendment, to amend the Massachusetts Constitution to allow that surtax and to earmark the surtax revenues for transportation and education. New revenue is necessary to rebuild crumbling roads, bridges and paths; improve public schools; invest in fast and reliable public transportation; make public higher education affordable; expand opportunities for healthy walking and bicycling; and give every child access to high-quality early childhood education and pre-kindergarten programs.
Right now, the highest-income households in Massachusetts — those in the top 1 percent — pay a smaller share of their income in state and local taxes than do any other income group. Our wealthiest residents can clearly afford to pay a little more to fund the investments we all need.
The Massachusetts Supreme Judicial Court (SJC) struck down the 2018 citizens’ initiative proposal as unconstitutional because it failed to meet the “relatedness” requirement for citizen-initiated constitutional amendments. Specifically, the spending provisions in the proposal combining education and transportation were unrelated to each other.
In the past, there have been five proposed referenda to graduate the Massachusetts income tax, but voters have voted down each proposal. If the Legislature initiates a tax proposal, there are different procedural and legal requirements for passing the proposal into law as compared to initiatives brought by the public (see chart below). With a legislative filing, for example, there is no restriction on the relatedness of matters in the proposal.
In January, Lewis filed in the Legislature the formerly proposed millionaires tax. Because legislator-initiated constitutional amendments are not subject to the relatedness requirement, this proposal would not face the same issues that caused the SJC to strike down the public initiative. The proposal will be reviewed and debated in committee and, if passed, would go to a joint session of the Legislature in a constitutional convention, where it would need a majority vote to pass. A majority vote is needed in two successive legislative sessions (2019-20, 2020-21) before the proposal can be presented to the voters as a referendum question and before it can become law. Lewis hopes to put the proposal before voters in 2022.
Q. Why did the previous attempts for a graduated Massachusetts income tax fail?
A. The voters do not trust what the graduated tax rates would be or the financial impact on them, and harbor cynicism about how government spends resources.
Q. Do you believe millionaires would leave Massachusetts to avoid the surtax?
A. Sen. Lewis did not believe that there would be a mass exodus of millionaires from the commonwealth if his proposal became law. This is backed up by extensive economics research on how the rates of state taxation impact resident migration.
Q. Can the Legislature pass a more general constitutional amendment relaxing the graduated tax prohibition, but not specifying rates?
A. A more general amendment could be passed, but then it would be up to the Legislature to determine actual tax rates and brackets. Such a proposal went before voters five times already, and each time it was soundly defeated.
Q. Would you establish two trusts (one for education, the other for transportation), not subject to appropriation, to track the proceeds from spending the millionaires tax so that proceeds of the surtax are not diverted to other things?
A. Sen. Lewis believes that tracking the spending of the tax proceeds is a valid concern, but thinks it strikes an appropriate balance if the Legislature went through a budget process instead that included the proceeds from the millionaires tax. The opportunity for voters to vote on education and transportation allocations was taken away by the SJC in its 2018 decision. He would put the same proposal before voters in four years so that the voting public can approve the best policy moving forward.
Q. How do you prevent the state Legislature from reducing appropriations that would otherwise go to transportation and education?
A. The Legislature would appropriate funds toward education and transportation, and the new law would show the intention of where the additionally raised funds must be spent.
Q. What is your sense of the Legislature’s support for your proposal?
A. The citizens’ petition proposal in this session and in the 2015–16 legislative session (i.e., the two prior consecutive sessions) garnered 70 percent support along party lines. In public polling, there was also 70 percent support.
Q. What are the dollar estimates of what the surtax would raise under your proposal?
A. It is estimated that the 4 percent surtax on individuals with over $1 million of taxable income, taking into account the inflation adjustment, would generate about $2 billion of new revenue for Massachusetts. The total state budget is $40 billion (including federal funds for Medicaid), so this new proposed revenue would constitute approximately 5 percent of the existing state budget.
Q. Is all Massachusetts taxable income over $1 million subject to the surtax?
A. Yes, the surtax applies to Massachusetts taxable income over $1 million. Massachusetts taxable income includes income from investments and compensation.
Q. Considering the distinction between the interpretation of statutes, which are read closely, versus constitutional law, which is read broadly, could you instead enact a specific tax statute and then propose the constitutional amendment as a general statement allowing progressive taxation?
A. Sen. Lewis is not sure the voters would understand such a process without specifying the surtax on millionaires of 4 percent.
Q. What if Massachusetts raised the additional $2 billion legislatively by increasing the flat tax for all taxpayers (with exemptions for low-income taxpayers), instead of changing the Constitution?
A. In 2002, the voters voted to reduce the Massachusetts income tax to 5 percent from a higher rate. The Legislature gradually lessened the flat rate over the years. The reduced rates are 5.1 percent in 2018, 5.05 percent in 2019 and 5 percent in 2020. It would be against the will of voters to raise that tax now. It took 16 years to get the rate down to 5%. Raising the flat rate also hits the middle class, too, unless there are more individuals exempt from the tax. (Former Gov.) Deval Patrick proposed to increase the class exempt from income tax, lower the sales tax and increase the flat income tax rate. That proposal failed, as the Legislature rejected it. The proposal is not progressive like a graduated system and squeezes middle- and upper-income taxpayers, but not the highest-income taxpayers. Taxes that fall on the middle class are unpopular with voters and elected officials. The middle class is already burdened with medical, housing and tuition costs, and adding an additional tax burden is difficult. There used to be two rates on earned income and capital gains tax, but the SJC rejected this regime. Going back to one rate could hurt retirees if their capital gains are taxed at a higher tax rate, and hurts the middle class if the flat tax rate is increased. In the economy now, there is a large spread of wages, and Massachusetts has one of the largest rates of income inequality in the country. Now nurses and teachers have to work two jobs to get by. The middle class is angry, and that is why (President) Trump was elected. The Fair Share Amendment is a progressive revenue source that will invest in the areas where working- and middle-class people need the most assistance and investment: education and transportation.