Our friends at MASSter list report that Raise Up MA, the group behind last year’s successful earned sick time ballot question, has a bigger target in its sights this time around: a graduated income tax. Specifically:
Raise Up is considering an aggressive target for revenue from a new tax rate for top earners – upwards of $2 billion a year, which the coalition believes would result from raising the rate to 9 percent on incomes over $500,000.
According to MASSter list, Raise Up has already done polling on the issue, and finds that this sort of approach is popular.
Raise Up conducted polling in January that showed strong support – upwards of 70 percent – for significant tax increases on incomes over $500,000. According to one person familiar with the polling data, an income of $500,000 and above resonated in polls as “wealthy” – and a level that should be taxed at a higher rate.
“Polling and focus groups have opened a new horizon about how strongly people feel about that $500,000 level,” said one of the organizers. Raise Up expects to be on the streets collecting signatures in the fall.
I think this is excellent news, even despite the unfortunate history of ballot questions like this one. Of course, in my view, the Massachusetts Constitution does not actually prohibit a graduated income tax. But, until the Supreme Judicial Court overturns its misguided precedents on the subject, a constitutional amendment is the only way forward. And it’s well worth another try.
Is there good data or analysis about very high income earners leaving the state either physically or just their “on paper income” should this pass? I’m interested in getting a feel for the magnitude of the downward pressure, if any, on the estimated $2B revenue increase.
This is not a leading question. This is not me being fer’ it or again’ it. This is just me asking for some actual analysis and thought about this particular question.
39.6% for people making over $400,000, it’s hard to imagine that raising the state income tax rate from 5% to 9% would drive those people out of the state.
Also, a progressive state income tax is a common-sense means of promoting social equity, so it’s hard to imagine why it hasn’t been enacted long ago by our overwhelmingly Democratic and progressive Legislature;-)
You pay the federal tax rate regardless of state of residence. In that sense, it’s unavoidable for Americans. State tax, on the other hand, is avoidable, and some states are as low as 0%, others as high as 13%+, and a broad spectrum in between.
If you have $1M in income, the difference between 5.3% and 9% on the $500k covered is $23,500/yr. If you have $2.625M in income, the extra tax is $100k/yr.
It doesn’t seem like enough to encourage many people to physically move, but it does seem like enough that there’ll be people who “move” to one of their other homes elsewhere in tUSA, etc.
It seems there should be some objective standard other than a rich person’s preferred tax rate.
Personally I think it makes some sense to tie it to where you vote – taxation without representation and all that.
Voting is tied to legal residence. There are a lot of Cape property owners who maintain a legal Florida residence for tax and inheritance purposes who fume that they cannot be voters here for town meeting and local elections. They have a LOT to say about taxation and representation. And as a bonus they have to pay excise tax on the CONTENTS of their houses as non-residents.
If you maintain a home in Mass (own or rent), you must be physically outside the state for more than half of the year to avoid being considered a Mass resident for income tax purposes (if you are a “resident” for tax purposes all of your income is taxed by Mass regardless of where it is earned).
If you don’t maintain a home in Mass then whether you are a resident for tax purposes is a facts and circumstances test. Relevant considerations: Number of days you spend in the state, where you vote, where your doctor(s) are located, where your kids go to school, where you obtain a drivers license, where your cars are registered, etc.
Most wealthy people that change their tax residency have homes in Mass so they are subject to the more objective test. Under that test any part of a day you spend in Mass counts as a whole day. It is virtually impossible to game the test because we all leave a very clear electronic trail of where we are these days. State tax auditors are very aggressive in this area. You are very likely to be audited in the year you change your tax residency.
a few years ago. I wonder if he ever got audited…
The trust – of which they can be the beneficiary – does the maintaining. They just sleep there….
so the legislature needs to vote on whether to put it on the ballot, but only the electorate can vote to amend the Constitution. The Gov, except for his bully pulpit, has no role in the process.
n/t
I provided a tiny bit of extra information. Do you object? Perhaps you wish to explain the Constitutional amendment process.
I thought it sounded like a correction.
One resource on this question from the Center on Budget and Policy Priorities, “Tax Flight Is a Myth”: http://www.cbpp.org/cms/?fa=view&id=3556
Expressed by Director of Revenue and Economic Analysis State of New Jersey in this analysis.
From the conclusion: “The bottom line is that our results appear to
indicate a meaningful association between state
income taxes and domestic migration.”
I suppose it will depend on the wording of the constitutional amendment.
However, if it can be spun as “giving the Legislature more power to tax,” you can probably kiss it goodby.
Not so much because of “tax,” though of course that is a hard sell, but because of “Legislature.”
I expect the political struggle to define this issue will be exactly over this. Is it about funding stuff? Or about more power to the Speaker?
That would seem to be the best way to structure (and sell) a graduated income tax, so long as the math works.
That might work if people trust the Legislature.
See the problem?
Income is different from wealth. I enthusiastically support a graduated income tax.
Still, we should not delude ourselves about the actual impact of this as written. Many wealthy individuals do not have income, as reported on a 1040, at these levels. Many of those who do can trivially (with a phone call) have their financial manager(s) rearrange their portfolio to accommodate such a change. Higher taxes on income are an important part of addressing this urgent issue. Just as important, if not more so, are higher taxes on WEALTH, as opposed to income.
Thankfully, it seems that our putative Democratic nominee joins our senior Senator in putting higher taxes for the wealthy front and center in the nascent presidential campaign just getting under way. Perhaps we will finally have an election-year conversation about income and wealth disparity — at both the national and the state level.
…wouldn’t it be income for that year regardless of what account, investment, etc you put it in?
It can be added directly to wealth without turning up on your W-2. Ask any state employee…you can defer portions your salary, let it accumulate, and then accept it as income when your household goes into a lower bracket. Available to state employees via pension portfolio managers like ING.
Suppose I am wealthy and hold a portfolio of, say $1B. When I borrow, say, $200K using that portfolio as collateral and deposit the proceeds in my bank account, I haven’t earned any income. When I spend that $200K to acquire a mortgage on a new piece of property (say a $1M vacation home), I haven’t earned any income. In fact, I’ve taken on a debt burden (although my net worth has increased).
When my portfolio goes up a tiny amount, I’ve just earned more than I borrowed. When my new vacation home has appreciated by 20%, then I’ve earned more than I borrowed — yet I haven’t sold anything and don’t owe any taxes.
At the end of the transaction, I’ve increased my wealth by $1M without any income and therefore with no income tax exposure. When I do that with equity in companies or loans to companies, instead of real estate, I am a venture capitalist or hedge-fund investor.
It is a different world, in which income tax rates play a relatively minor role.
I an describing the more widespread middle class one. We should also tell Christopher that state employrees have their gross pay lowered by the amount paid for benefits so they pay taxes on the lowered amount rather than the true gross.
Point is there are many such techniques and strategies at most income levels – sometimes people decline a COLA because it puts them $25 over the income limit and loses them thousands in housing, subsidized food, etc.
He asked if compensation isn’t income and the answer is – not always.
…that I would tax those examples as actual income, but maybe that’s just a different way of saying tax wealth.
I think you’ll find it nearly impossible to define “income” in a consistent way across the many asset types that exist. The truly wealthy have a great many assets whose actual value is impossible to discern, never mind changes in that value. The best we can do, after several millennia of effort, is to set the monetary value based on when an asset changes hands.
It is challenging problem. Perhaps we might get there by taxing overall changes in net worth.
I would also like to see much higher federal/state gift and estate tax rate for estates valued above a certain threshold. Because that is calculated less frequently and does not require measuring changes in value, it is potentially more straightforward to compute.
Actually at that point your net worth is unchanged. You acquired a debt which was offset by the cash you received. When you spend the 200k on real estate your net worth still remains unchanged, you simply exchanged an one asset for another of equal value, cash for real estate.
You are correct that when the property appreciates you have an increase in net worth, but no tax liability. The gain is taxed when taken; when the appreciated asset is SOLD for a higher price than was paid for it. Often in these situations, when the investment is sold and another “like kind” asset is purchased the taxable gain can be deferred using a transaction covered by IRS section 1031. Taxing the fluctuations in the value of assets is becoming more common these days and (in my opinion) will likely be expanded.
Indeed, I mis-spoke about the current net worth.