Question One: The Fair Share Tax
A state tax return with more than a million dollars of MA taxable income is subject to the Fair Share Tax. That is, the income over a million dollars will be subject to the Fair Share tax. The first million dollars is taxed at the normal 5%. If the income is passed to partners and shareholders, the business does not pay the Fair Share Tax. Only partners and shareholders whose individual income exceeds a million dollars will pay any of the Fair Share Tax
The Vote “NO” campaign broadcasts a TV commercial that’s states, “Question 1 will tax small businesses.” Question 1 taxes tax returns that are paying tax on more than one million dollars of income. Many small businesses are pass through entities that pay no tax. They carve up the profits and apportion the income among the partners and shareholders, (a pass-through entity). A million dollars of profits is then split among the two or three owners. Each partner’s share is less than a million dollars; so, none of the partners are over a million dollars of income to pay this tax.
Suppose a farm or fishing business is incorporated. The corporate shareholders could be subject to the Fair Share Tax, if the business after paying wages and expenses has a profit dividend to each shareholder in excess of one million dollars. Local Farmers and Fishers don’t pay themselves million dollar wages, nor do they issue million dollar dividend checks.
Jenn is self employed hairdresser. Julie is an independent consultant. Janice operates a day care out of her home. For any of these more traditional small business people to be taxed by Question 1, they would need over a million dollars of earned profit after expenses or over a million dollars of revenues after deducting expenses and additional investment income to be subject to the new Millionaire Fair Share Tax.
The Massachusetts Budget and Public Policy Center estimates that 24,000 households could be subject to the additional tax and they would generate two billion dollars of tax. Consider that in MA a pre school teacher’s salary averages $44,000, an attorney typical makes $168,000, a radiologist $341,000. The President of UMass is paid $729,000. None are subject to the tax.
Yes, this impact is the top 0.1% of the population and not the rest of us. Question 1 will tax the partners of the Celtics business, maybe a few ball players and the senior executives at Fidelity. There are over 40,000 people employed at Fidelity. The entry level salary at Fidelity is typically a little more than $40,000. Ninety percent of the employees make less than $120,000. None of these people are subject to the Question 1 tax. A portfolio manager is paid about $320,000. Gary Norcross Fidelity President and Chair and CEO earned $25M in 2021. Asif Ramji, Chief Growth Officer, was compensated $18M. They are subject to the Fair Share tax.
What if an elderly person sells a home?
The Vote “NO” on One Group claims that the question unfairly taxes the elderly who sell their home. Let’s figure out how this might work, because many homes in the Boston area are worth close to a million dollars.
- Jim and MaryAnn sell their home for $1.2 million dollars. They bought it in the late 70’s for $100,000. They have a profit of $1.1M, but are not subject to the Millionaire Fair Share tax because they are allowed a $500,000 capital gain home sale exclusion. They can further reduce the taxable capital gain by the costs of remodeling and any capital expenditures that improved the home. They pay a 5% tax on their Massachusetts income.
- Bob and Virginia sell their home for $2.6 million dollars. They bought their home in the early 80’s for $200,000. They choose to file separate state returns where they split the $2.4 million dollar capital gain. Each reports proceeds of $1.2 million and then subtracts the $250,000 home sale capital gain exclusion. Neither is subject to the Fair Share tax.
- Peter sells his home for $3 million dollars. He bought is for $400,000 years ago. His income likely exceeds a million dollars and he is probably going to be subject to the additional 4% tax on the amount over a million dollars.
By the way, MA does not tax Social Security benefits. No one will pay the fair share tax on social security income, eve if they have a more than a million dollars of investment and other pension income.
Thank you for listening to my take on Question One.
I was talking to one of those “Why do we punish success?!” types about Question 1 and apart from my objection to her opinion that taxes are punishment, I asked her this:
If I make $1,045,000.00 next year, how much more will I pay in taxes? She forgot that the 4% is only that which is more than a million because she said she only knew it was a lot of money. Well yes, $1,800 is a lot of money to some, but to a guy who makes over a million a year? Gimme a break.
It seems like every cycle there is one opposition campaign for a ballot question that really jumps the shark in terms of false claims.
Pioneer Institute’s Jim Stergios claims incorrectly that “subject to appropriations for these purposes”, (education and transportation), means that at any time the legislature can override this constitutional amendment and can use the money for whatever purpose the legislature feels like funding. “Subject to appropriation for these purposes” means that funding must be released under the supervision and approval of the legislature for educational and transportation purposes. Stergios is stretching the credibility of the Pioneer Institure.
The constitutional amendment is necessary to allow the Commonwealth to tax the same type of income at two different tax rates, (Article XLIV “…levied at a uniform rate throughout the Commonwealth upon incomes derived from the same class of property.”)
Question One is not a policy, guideline or Senate rule; it’s the Constitution. This claim is grossly inaccurate and possibly disingenuous.
Thanks for posting this. This is one of the big questions I have. My recollection was that, years ago, a ballot measure required the legislature to fund “Clean Elections.” The ballot measure passed, and the legislature just refused to do so. The consequences of this were… nothing. How is this different? If the legislature chooses to use the money to give someone at the Probation Dept a big raise, what is to stop them?
I think you refer to the 1998 Clean Elections ballot question, which was opposed by the leadership on Beacon Hill. A few years after voters put it in place, the legislature repealed it. The legislature can change a law; that’s what they do.
Question One is different, because it’s a consitutional change. The legislature cannot repeal the consitution. Opponents to Question One know that they are blowing smoke. As a research think tank, the Pioneer Institute has foreited its integrity.