As the proponents of a ballot question to increase the state income tax rate on earners of over a million dollars a year move forward, we can expect to see a good deal of pushback along the lines of “the people who wrote Amendment Article 44 understood that a graduated income tax is a bad idea, which is why they specifically made it illegal.” For example, a couple of weeks ago, we heard from Jeff Jacoby:
More than a century ago, the Legislature recognized the fundamental inequity of imposing higher marginal tax rates on higher incomes, a perpetual invitation to class warfare. Lawmakers refused to allow the practice in Massachusetts, even as most other jurisdictions embraced it, and they went so far as to write that prohibition into the state constitution.
And in today’s Globe, here’s state Rep. Kevin Kuros:
Article 44 requires taxes “be levied at a uniform rate throughout the Commonwealth upon incomes derived from the same class of property.” Clearly, the Constitution’s framers understood a uniform tax rate means those earning more pay correspondingly more. Taxing at higher rates punishes success while doing little to help the less fortunate.
Proponents want to “modernize” the Constitution and implement a progressive tax on those earning over $1 million annually. I contend the Constitution has it correct, for several reasons.
Set aside the fact that the “Constitution’s framers” were all dead decades before Article 44 was adopted in 1915. The more important issue, as regular BMG readers will recall, is that in fact, Article 44 says nothing at all about a graduated income tax. It doesn’t require one, nor does it forbid one. The supposed “constitutional ban” on a graduated income tax is, instead, the product of a badly misguided 1921 Supreme Judicial Court decision that utterly mistook the actual purpose of Article 44. I’m not going to summarize the entire, rather lengthy post that I wrote two and a half years ago explaining how this all happened – that’s what the internet is for. You can read (or reread) the whole thing at this link.
As the argument over whether to formally adopt a graduated income tax unfolds over the coming months and years, it’s useful to bear in mind – and to be prepared to argue – what Article 44, properly understood, actually does and doesn’t do.
fredrichlariccia says
thank you David, for enlightening us on the history of the graduated income tax. As a lifelong advocate for a state GIT I had mistakenly assumed that it WAS forbidden Constitutionally. I did not realize that Article 44 was agnostic on the subject.
Well,this sheds a whole new light on the issue. How can we win this fight? I’d like to hear ideas from those who are knowledgeable about strategy moving forward.
Fred Rich LaRiccia
Founder, P.O.W.A.R.
jconway says
Is it redundant? Would it be able to take affect if passed?
TheBestDefense says
EOM
Trickle up says
Is the SJC going to rehear Raymer?
I can see how this information might be useful in the course of a ballot campaign, to puncture the rhetorical balloons about the Framers’ holy intent. So, good point.
But the ballot campaign is proposal to amend the constitution precisely because of Raymer. Because it, like Citizens United and Bush v Gore, is the law of the land.
David says
Unless the SJC overrules Raymer, which seems unlikely, an amendment is necessary. Nonetheless, even if only as a rhetorical matter, I think it’s useful to understand the history.
paulsimmons says
“…the Massachusetts Constitution is what the SJC says it is.”
Christopher says
…wasn’t he also the one who said that taxes are the price we pay for civilized society?
paulsimmons says
Compania General De Tabacos De Filipinas v. Collector of Internal Revenue, 275 U.S. 87, 100, dissenting; opinion (1927).
Note that it was a dissenting opinion.
pbrane says
… are taxed at different rates depending on how long assets are held. So, for example, a gain realized on the sale of a share of Apple stock held for one year is taxed at 12% in Mass but a gain realized on an identical share of Apple stock held for one year and one day is taxed at 5.15%. How is this not squarely at odds with Article 44?
kirth says
If Article 44 requires taxes “be levied at a uniform rate throughout the Commonwealth upon incomes derived from the same class of property,” what has that got to do with income derived from labor? Labor is not property, is it?
David says
If you look over Raymer, the 1921 SJC decision I mentioned, you’ll see how we got to where we are today. Basically, an agreement to work in exchange for money is a contract; contracts are property; and therefore a salary is “income derived from property,” hence subject to Article 44. It is a self-evidently terrible argument, for the reasons explained in my previous post. But that’s where we are.
pbrane says
If it’s ok to have two different rates for the same class of property, as has been the case for capital assets for a very long time, why isn’t ok to have a multiple rate structure apply to wages?
David says
I suppose the argument would have to be that assets held for over a year are a different “class of property” than those held short term? But that seems a stretch. I wonder if power-wheels, our resident tax whiz, would care to comment.
power-wheels says
Commissioner v Putnam 227 Mass 522 for a little more background and history. I’m extremely busy right now giving tax advise to clients that are actually paying me for it, but I may be able to provide a better answer later tonight.
Bob Neer says
Let’s hope those clients are providing you with proper property. 😉
David says
it appears that the question whether short-term vs. long-term capital gains constitute income derived from different “classes of property” such that they can be taxed at different rates was raised, but not decided, in a 1996 case. Not sure it’s been addressed since then.
thombeales says
This has always confused me. I take $1000 out of my bank account, go to Foxwoods, get lucky and double my money winning $1000. I’m taxed at the going 5.whatever percent rate. I take $1000 out of my bank account, buy some stock sell it a month later after it doubles in price and again make $1000 bucks. I’m taxed at a higher capital gains rate. Assuming no illegal insider trading took place in both cases I’m a lucky stiff. What’s different?
stomv says
10ks are the difference.
lodger says
When you go to Foxwoods you don’t purchase anything of value which results in your profiting. No change in the value of a owned asset takes place.
A stock purchase on the other hand gives you a proportional ownership of a corporation. In this case it is the change in the market value of that asset which results in your profiting.
SomervilleTom says
Continuing in the spirit of your comment, I think you are mistaken about your characterization of what happens — legally — at Foxwoods.
When you got to Foxwoods, you LEASE a stack of chips. I remind you that a business MUST capitalize the lease it takes for office space. The “owned asset” is the right to use the chips for a specific period, not the chips themselves.
Of course this approach is absurdly different from the reality of what happens at Foxwoods. I think the point is that the legal and tax treatment of what happens on the floor of the NYSE is equally absurd. Only employees (a smallish number), family members and friends buy shares of a corporation because they want to be a part of making the corporation succeed. The overwhelming majority of stock buyers make their purchase in hopes of selling that stock for a profit. They GAMBLE, just like Foxwoods patrons.
The laws turn handsprings to protect market gambling because the laws are written by those who profit from the game (generally the “dealers”, not the players, by the way). The GOP is particularly committed to expanding the “Stock Market” game, expanding the reach of its players, and maximizing tax-payer funding for their enterprise.
Let’s not kid ourselves about the reality of all this.
Christopher says
…that “uniform rate throughout the Commonwealth” is a geographic reference? In other words, the state can’t tax income at 5% for folks living in the Berkshires, bu 7% for those living on the Cape.
TheBestDefense says
It was not intended that way according to the historical record but it may be relevant. It is generally thought that the Commonwealth cannot allow municipalities the right to impose a municipal income tax because of the uniformity clause. If there were local income taxes, then income from the same source would be taxed at different rates for different people, based on geography.
The SJC decided in 2005 (Peterson v. Commissioner of Revenue) http://caselaw.findlaw.com/ma-supreme-judicial-court/1393501.html
that the Commonwealth cannot apply different tax rates to capital gains during different times of the year. In 2002, former Rep Marzilli led the effort that convinced Speaker Finneran to reinstate a uniform capital gains tax instead of the vanishing cap gains tax that was so beneficial to investors. I still remember hearing the often profane Finneran say something like “if my f-ing plumber pays taxes on his income then why should investors get to pay less” although he probably used the “f-ing” word a few times in the sentence.
Former Sen Pres Birmingham played the usual inter-chamber game of not going along with the cap gains tax increase, protecting his gubernatorial candidacy and his Senate colleagues from casting a pro-tax vote in an election year. Ultimately the two chambers agreed to re-instate the cap gains tax at a uniform rate equal to the earned income tax, commencing on May 1 of 2002. The SJC ruled that taxing cap gains at one set of rates before May 1 and a different uniform rate after May 1 violated Article 44 and voided the law.
A pissed-off Marzilli hired the attorney in the aforementioned 1996 case, Carl Valvo, probably with union money although there is no public record of the private payment to Valvo. They prevailed to much fanfare until legislators realized that they would then have to vote to vote to impose the tax on transactions from three years previously, or vote to forego the full year of revenue. The lege took the latter route and the uniform cap gains tax remained in effect from calendar year 2003 and continues through today.
Christopher says
…isn’t how I would have interpreted geographic uniformity. I thought it meant the STATE couldn’t play favorites, but individual communities acting on their own could enact whatever rates are best for them, just as states set their own rates independently of whatever the federal government decides.
Trickle up says
Property taxes are state taxes levied under the fiction that they are not–that they are purely local.
But cities and towns are divisions of the Commonwealth and derive their taxing authority from state law. (If you doubt that, vide a state law known as Prop 2-1/2.)
Property taxes are also clearly not uniform throughout the Commonwealth. Clearly not allowed by Raymer’s logic, though Raymer is clearly wrong.
johntmay says
Rep. Kevin Kuros keeps fanning the flame on that tired canard. Taxes are what is owed to the government, nothing more, nothing less. They are no more “punishment” than the bill one receives for ones meal at a restaurant.
As to the mindset of the framers, here’s a word or two from Thomas Jefferson on the subject of wealth disparity and progressive taxes.
“I am conscious that an equal division of property is impracticable. But the consequences of this enormous inequality producing so much misery to the bulk of mankind, legislators cannot invent too many devices for subdividing property, only taking care to let their subdivisions go hand in hand with the natural affections of the human mind. The descent of property of every kind therefore to all the children, or to all the brothers and sisters, or other relations in equal degree is a politic measure, and a practicable one. Another means of silently lessening the inequality of property is to exempt all from taxation below a certain point, and to tax the higher portions of property in geometrical progression as they rise. Whenever there is in any country, uncultivated lands and unemployed poor, it is clear that the laws of property have been so far extended as to violate natural right. The earth is given as a common stock for man to labour and live on. If, for the encouragement of industry we allow it to be appropriated, we must take care that other employment be furnished to those excluded from the appropriation. If we do not the fundamental right to labour the earth returns to the unemployed”
jconway says
It was critically important to a piece I am working on supporting the ballot initiative and I want to make sure my facts are 100% right. It also helps with the framing of this issue, since we are using the ballot box to correct right wing judicial activism from over 80 years ago. Always good to be on the side of the people, and I think if we can persuade the average Bay Stater that they need their government, government needs revenue, and the rich are fleecing them by paying proportionately less than their fair share, then we can have a better chance than previous campaigns. Sucks it has to be during a non-presidential year though.
Christopher says
I know the cycle starts early, but it’s not already too late to start the question process for 2016 is it? I haven’t heard about other questions being in the petition phase I’m pretty sure.
petr says
From the website linked to previously… , emphasis mine..
Christopher says
Since the thrust of this diary is that one wasn’t necessary I thought we would try for a simple initiative. Sorry
David says
Unfortunately, the SJC’s misinterpretation of Article 44 cannot be undone by a simple statute. It either has to be an amendment, or the SJC itself has to overrule its mistake.
Christopher says
…doesn’t there have to be a statute that would bait it into doing so?
David says
it would be poor strategy to undertake the effort and expense of getting a question on the ballot that you know is unconstitutional under current law, just in the hopes that the SJC will see the error of its ways. Because the odds are pretty good that it won’t overrule even if given the chance.
TheBestDefense says
You will see in the first line of David’s original post that this post is about the ballot question, which is a Constitutional amendment.
Gumby says
Thank you for re-posting this! So interesting! I had heard the old “a flat tax is written into our constitution” line many times, and had never known it was about as legitimate as “corporations are people and money is speech.” This fact should be a useful tool in drawing people away from the status quo.