Study finds proposed ‘millionaire tax’ could help reduce inequality, if revenue is spent wisely

A new report from the nonpartisan Center for State Policy Analysis at Tufts University finds that a proposed state tax on income and profits of more than $1 million could help reduce inequality.

But the report also raises questions about how the extra money would be spent.

The researchers analyzed the so-called “millionaire tax,” which would add a 4% tax on earnings over $1 million. That threshold would increase over time to account for inflation, under a ballot measure to be decided by voters in November.

The tax would bring $1.3 billion in additional revenue to state coffers in 2023, the researchers found. This estimate takes into account possible tax avoidance strategies and the likelihood that some taxpayers will leave the state rather than pay the additional income tax, according to the study.

“The impact on the overall economy is likely very small,” said Evan Horowitz of Tufts, co-author of the report. “But the ability to make targeted investments is real and significant.”

Massachusetts currently taxes all income at the same rate: 5%. The election issue would etch the high income surtax into the state constitution. Proponents of the measure say the extra revenue would fund education and transportation.

However, Horowitz says, in the past, the percentage of earmarked funds that achieved their intended goals ranged from 30%-70%. That’s because Massachusetts tax revenues come with some flexibility to be spent based on priorities set by lawmakers.

Where the money goes “depends on a lot of different factors,” Horowitz said. “To what extent are the unions pushing you to use this money in a particular way? How responsible are your politicians? Is it easy to count the money?”

Steve Crawford, spokesman for Raise Up Massachusetts, a coalition of labor and community organizations lobbying for the new tax, said the language of the proposed amendment specified “public education” as well as “roads, bridges and public transport”. He also said the coalition intends to act as a watchdog over how the money is used if the amendment passes.

“No one disputes that we need more money for education and transportation,” Crawford said. “It provides a dedicated long-term revenue stream for that purpose.”

Part of the Tufts report examined whether increased spending on education and transportation led to better outcomes. Researchers have found an extremely strong correlation between higher education spending and better student outcomes. They did not find a clear correlation between increased transportation spending and overall economic growth.

According to figures from the state Department of Revenue, a tiny fraction of Massachusetts households — 0.6% — had incomes above $1 million in 2019. About 90% of those households were white. The Economic Policy Institute ranked Massachusetts as the sixth-worst state in the nation for income inequality.

Groups calling for the tax argue that it would promote fairness and help people who may not have benefited from generational wealth.

Opponents of the tax, including business groups and some small business owners, say it would increase the burden on businesses at a time when employers are already facing higher costs due to inflation, personnel issues and supply chain issues that have been exacerbated during the COVID -19 pandemic.

Another concern raised by groups such as the Massachusetts Taxpayers Foundation is that adding a tax through a constitutional amendment removes legislators’ flexibility to raise or lower the tax rate in response to changes. economic. A change currently underway is the growing popularity of remote work and other flexible employment arrangements. Data shows more people have left Massachusetts since the pandemic began, which Mass. Taxpayers Foundation attributes, at least in part, to many. new ability of employees to work remotely.

“Imposing a 4% increase will only make this problem worse by giving people another reason to leave Massachusetts,” the group said in a recent analysis.

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