How can we take advantage of the furor over income inequality and increase state revenues by taxing the 1%? David informs me (see first comment) that the Massachusetts constitution calls for a single income tax rate for everyone!
Raising taxes on dividend and interest and raising estate taxes are excellent ideas. However, I wonder if this creates an incentive for the ultra rich in Massachusetts to change their state of residency. To address this challenge, I wonder if we could amend Proposition 21/2 to allow higher rates on properties worth more than two million dollars, with exclusions for people who submit federal tax returns that show an inability to pay. Combined with this would need to be a provision requiring the locality to turn over the extra revenues to the state or some other fund.
Historically, resistance to changes to prop 21/2 has been high, but their is now a growing movement to tax the wealthiest Americans.
What if we organized a ballot initiative to raise taxes on capital gains and estate taxes of amounts over a certain threshold or to amend prop 2 1/2?
Now suppose that 50% of the revenue is earmarked for the following purposes
- Reduce tuition at state colleges and universities
- Cover student loan payments for people engaged in qualifying internships.
A coalition of students, occupy enthusiasts and others would then be organized to get the proposal on the ballot.
I realize that there is a bill already out there which is called “Invest in Our Communities” which is focused on our clear need to use the state’s superior ability to tax to help communities which have been starving for tax revenues for years. I support this effort 100%. My idea of earmarking some money for education was partly in hopes of enlisting students and recent grads in the effort of collecting signatures and getting out the word. I also think if ALL of the tax increases fall on the very wealthiest, than the measure would be much more likely to pass.
I’ve never been involved in organizing a ballot initiative in the past. Let me know what you think and who I should connect up with.
is that the tax you propose would not be permissible under the Massachusetts Constitution, which requires that the income tax rate be the same for everyone. The courts have allowed only slight deviations from that rule; this one would, I’d think, go too far. A constitutional amendment would be required to change the rule.
I’m less concerned about income inequality and more concerned about wealth concentration. Income and wealth are two very different things.
One issue with increasing property tax rates based on property valuation is that property valuations frequently skyrocket while the owner’s ability to pay anything (never mind taxes) stays fixed. An elderly couple who inherited a family farm in a town experiencing growth may suddenly find themselves facing astronomical property tax bills with no way to pay them. Such properties often end up being sold off for taxes — the town ends up with another dozen or two four-bedroom colonials (which cost the town FAR MORE then they net in new property tax revenue) and another piece of open space is gone.
I think a better approach is to target inter-generational wealth transfer. The gift/estate tax is under-utilized, especially given that Massachusetts has a high concentration of wealthy families.
That “elderly couple who inherited a family farm” wouldn’t have been able to keep it with the high estate taxes you desire. The town would have ended up “another dozen or two four bedroom colonials” upon the the death of the benefactor years earlier.
The high estate taxes I desire kick in on the amount of the estate in excess of $10M. This is twice the current federal gift exemption of $5M, and that exemption already means that 99% of estates escape ANY gift/estate tax.
We may have different scenarios in mind for that “elderly couple”. I picture folks in the 80s who grew up on their property and inherited it 40-50 years earlier — when the gift/estate taxes were MUCH HIGHER than today. The dire scenario you contemplated would have happened then — and didn’t.
Anyone — even this hypothetical elderly couple — who has an estate valued in excess of $10M has the resources to retain a competent estate planner. I strongly suspect that most two or three of those new houses might get built.
I found a chart here that indicates returning the estate tax to pre94 levels would net us 253 million and returning tax on interest and dividends (income from wealth)to pre98 levels (12%) would net us 289 million.
In the case of the estate tax, I would not suggest going back to the previous calculation. (For a description of the current calculation, go here If this were a ballot question, it would be better to set out something simple: say 10% on Estates over 1 million, (the current top rate seems to be around 16%) 20% over 10 million, 30% over 20 million 50% over 30 million. Of course, such a sudden dramatic rise would send the wealthy fleeing to their financial consultants and their lobbyist. Should there be an exemption for a family business, such as a farm? If you check out the link here it appears that most small farms are not worth more than $20 million.
I’m wondering if a tax increase can be accomplished by a ballot initiative alone. I imagine if legislative approval is needed, all is lost. The failure of the Buffet rule to pass, despite overwhelming support of the general population, indicates how beholden national office holders are to big money. Does the same hold true here at the state level?
We share a goal of increasing taxes on the very wealthy, while minimizing increases on the middle class and the poor.
I would love to see this chart updated to include the last ten years.
Several items on that chart jump out:
1. Reversing the “Capital gains reform” of 1994 would net in excess of $510M, affecting primarily the wealthy. I’m not sure why this amount declined by nearly 50% between 2001 and 2002, that would be interesting to understand.
2. Restoring the 12% rate on interest and dividend income would net in excess of $289M.
3. Reversing the “Gift/Estate tax reform” of 1993 would net about $253M. I think it could be even simpler than your contemplated rate tiers — eliminate the gift/estate tax for estates up to $10M and impose a flat 30% rate for estates over $10M. One way to recapture wealth from those who would flee the state is to impose a similar increase at the federal level combined with a formula for apportioning the resulting increased revenue among the states where wealth is “parked”.
I’m not sure what these numbers will look like when updated to reflect today’s economy, but I think it’s safe to say that these would:
1. Provide in excess of $1B in additional revenue to the state
2. Focus the impact of this revenue on the wealthiest individuals in the state
3. Have minimal impact on “the 99%” in the state.
I think the drop in capital gains revenue from 2000 to 2005 was due to the stock market decline after the dot com bubble burst (for chart look here) After that the stock market recovered but that was offset by falling real estate prices.
(Drop in housing prices here)
There’s no reason I know of that tax rates can’t be either raised or lowered via ballot initiative. Of course, the legislature can step in and change what the voters did (as they did after the 2000 election when MA voted to cut the income tax rate to 5%), but voters can take the initiative.
I’m glad you came to Massbudget.org for information on tax policy, but I wanted to say that the chart you linked to is now out of date. Not only are the estimates no longer accurate, but not all of those tax cuts are still in place.
If you’re looking for slightly more updated information, take a look at the appendix to our Tax Primer (or the tax primer as a whole, for that matter).