‘Millionaire’s Tax' Proposed in MassachusettsJuly 24, 2017
MA households with incomes exceeding $1,000,000 could be subject to something called the “Millionaire’s Tax” in 2019—a tax some are supporting, and others are calling burdensome.
The Massachusetts Legislature recently approved a proposed “millionaire’s tax” in the Commonwealth. If adopted, the constitutional amendment will tack a 4% surtax on all taxable income above $1,000,000 for Massachusetts residents.
First of all, how do amendments work in Mass?
Under the MA Constitution, amendments proposed by petition are called “initiative” amendments. For all amendments, legislators attend a constitutional convention and if enough legislators agree on the amendment (50% for legislative amendments and 25% for initiative amendments), they attend another convention the following year. There is then a subsequent referendum if that convention passes the amendment.
Taking this into account, the initiative amendment needed 50 of the 200 seats in each convention for a referendum. In May 2016, 135 legislators voted for the amendment, 57 against. Then, most recently, 134 legislators voted in favor, 55 against. It is a three year process, meaning that there is only one more step—the 2018 ballot for MA voters.
If the 2018 vote passes, what happens?
If this happens, the amendment could become law as early as January 1, 2019 and the tax rate on income over $1,000,000 generally would increase to 9.1% (from 5.1), but the tax rate on Short-Term Capital Gains could increase from 12 to 16%.
What else would the amendment do?
The amendment would....
- Restructure the state’s income tax. Though MA has different classes of income, each class only has one rate, but the amendment would transition Massachusetts from a single rate to multiple rates for each class of income. Thus there will be multiple tax brackets for each income class.
- Affect nearly 20,000 taxpayers and raise about $1.9 billion of additional tax revenue, according to current estimates.
- Change how MA tax rates compare to those of other states. There are 44 states as of now (including the District of Columbia) with some form of an income tax. Massachusetts’ ordinary income tax rate of 5.1% is the 28th highest ordinary income tax rate in the U.S. The rate would be the 5th highest if the surtax is added.
What supporters of the amendment have to say...
Supporters say that the amendment....
- Provides revenue needed for education and transportation.
- Supports a more progressive mindset. Many believe that the state’s income tax should be more progressive, largely because less affluent households spend more of their money on other taxes that more prosperous households don’t have to worry about.
What opponents of the amendment have to say...
Opponents argue that....
- Legislators will be forced to reallocate revenue from the surtax because it is estimated to decrease revenue by nearly $500 million for 2017.
- High-income households will move to other states to avoid the surtax, increasing taxes on middle-income households in the Commonwealth.
Is MA the only state with a millionaire’s tax?
In response to revenue pitfalls, several states and the District of Columbia already have some form of “Millionaire’s Taxes” in place, and others are pondering comparable taxes.
We’ll keep you updated on the tax and its possible passage. Questions? Contact a member of our Private Client Services Team for more info.