Surtax supporters say fears about wealthy leaving are overstated

Advocates say it is a "disproven myth" that wealthy would leave due to higher taxes

BOSTON (State House News Service) – Some Massachusetts millionaires are “clearly terrified” that voters will raise their income taxes, but even if the proposal takes effect the top earners won’t flee the state en masse, according to a liberal group pressing for the tax plan’s passage in the face of new concerns raised by a business group.

The House and Senate voted 135-57 last year to advance a proposed constitutional amendment adding an income surtax on the state’s highest earners and the branches meeting in joint session Wednesday could pass it again to put the matter before voters on the 2018 ballot.

The Massachusetts Taxpayers Foundation (MTF), a business-backed public policy group, warned Monday that the proposed 4 percent surtax on incomes over $1 million could lead to a migration by millionaires from Massachusetts, endangering the state’s finances and economy.

“The millionaires who fund the Massachusetts Taxpayers Foundation are clearly terrified that voters are going to ask them to pay their fair share in taxes, because the Foundation is deliberately trying to mislead legislators and the public,” Raise Up Massachusetts said in a statement Monday.

Raise Up and the left-leaning Massachusetts Budget and Policy Center argued that millionaires are more firmly rooted into their communities than those with more modest incomes. Citing research from Stanford University and U.S. Treasury economists, the policy center wrote that millionaires are more likely to be married, have children and own a business, all of which correlate to staying put.

According to the policy center, 2.4 percent of millionaires – or about 12,000 households – move to a different state each year while among the overall population that rate is 2.9 percent. While all Massachusetts taxpayers now pay a flat rate of 5.1 percent of their salaries to the state, New Hampshire has no income tax on wages.

A Raise Up spokesman said a millionaire’s residency is primarily determined by proximity to work and family and secondarily influenced by housing costs and climate, with tax liability playing a smaller role in decision-making. The advocacy organization called it a “disproven myth” that millionaires would leave Massachusetts because of the tax.

MTF reported that out of the 19,600 tax filers who would be subjected to the surtax, 900 earn more than $10 million per year, accounting for 53 percent of the projected $1.9 billion in revenues from the proposed tax. The group said the plan “taxes talent – Massachusetts’ principal competitive advantage.”

Eileen McAnneny, the president of MTF, said the proposed tax would have the greatest effect on a small group of people who have a high range of options – such as second homes where they might claim residency without ever needing a moving truck – and professionals who advise them on how to avoid tax liability.

While MTF has cautioned that applying a new tax to top earners could destabilize state finances if high-income households decide to leave the state in significant numbers, the budget and policy center estimated that the state and municipalities would only lose $24 million in tax revenue while the higher tax would net about $1.9 billion.

A coalition of unions, faith groups and community organizations, Raise Up Massachusetts has notched some major victories in the past few years, encouraging lawmakers to increase the minimum wage and backing a successful ballot law guaranteeing workers sick time. Raise Up collected more than enough signatures to put the surtax proposal before the Legislature, where it has been greeted warmly by most Democrats.

Harris Gruman, executive director of the SEIU Massachusetts State Council, told a group at the State House two years ago that polling and focus groups showed that taxing incomes over $1 million was much more popular than taxing incomes over $300,000.

The proposal, which would become part of the state constitution if voters pass it next year, is designed to devote the revenues towards education and transportation, though opponents say policymakers would play a shell game with the new funds, sending extra money to budget priorities without constraint.

While declining to take a firm stance on the proposal, Gov. Charlie Baker said some have already spent the anticipated tax dollars “six ways to Sunday.”

“The past four budgets demonstrate why these funds may never be appropriated for education or transportation, even if legislators support these causes,” MTF wrote. “Confronted by budget gaps of $1 billion or more, lawmakers have used all available funds to close shortfalls every year since FY 2015.”

Raise Up claimed the text of the proposed amendment “ensures” the money raised would be spent on transportation and public education, and said a provision of the constitution “already dedicates revenue from the gas tax and other sources to the transportation needs.”

“Instead of defending a few hundred people whose incomes exceed $10 million a year, the MTF should remember that they’ve advocated for increased investments in transportation for years, and realize that now is the time to support a real solution to our state’s lack of investment,” Raise Up wrote.

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