As part of its constitution, Massachusetts has a flat-rate income tax. Since 2020, that rate has been 5.0 percent and was actually higher in some previous years. Various interest groups have tried over the years to change the constitution so that the state government could impose a higher income tax rate on high-income people. Other people successfully and valiantly succeeded in fighting off those attempts.
This month, there was, yet again, a measure on the Massachusetts ballot to change the constitution and impose a higher tax rate on people with high incomes. Specifically, the measure called for a 4-percentage point surtax on the portion of people’s income in excess of $1 million. I had hoped to report that this measure failed.
Alas, I cannot. With 99 percent of the votes counted, 52.0 percent voted Yes, with 48.0 percent voting No. That means that it’s mathematically impossible for the measure to be voted down. If every single remaining vote were a No, that would mean that 51.5 percent are Yes votes and 48.5 percent are No votes.
These are the opening paragraphs of my “The Bad News from Taxachusetts,” IPI, TaxBytes, November 16, 2022.
And the last paragraph:
The requirement that everyone pay the same tax rate on income restrained politicians from raising the tax rate substantially because they knew it would hit everyone. Indeed, sometimes that constraint led politicians to actually cut Massachusetts’ income tax rates. In 1992, for example, the tax rate was 5.95 percent. It fell in steps to 5.0 percent. Sadly, the constraint that led to that happy result is now gone.
Read the whole thing, which is quite short.
READER COMMENTS
Scott Sumner
Nov 16 2022 at 7:00pm
That’s very sad, but it will provide a boost to Seattle’s already red hot economy. Washington has no state income tax, and is culturally closer to Massachusetts than are some of the low tax sunbelt states.
Jon Murphy
Nov 17 2022 at 2:57am
Just given proximity, might there be a bigger flow to NH (who has no income or sales tax) than Washington?
MarkW
Nov 17 2022 at 11:28am
Right — what’s bad news for Massachusetts may be good new for New Hampshire. BTW, is MA still trying to impose income taxes on NH residents who used to commute to offices in MA but now work from home in New Hampshire?
Scott Sumner
Nov 17 2022 at 1:48pm
New Hampshire’s problem is that it lacks a big city. That’s a turnoff for highly educated young people.
Jon Murphy
Nov 17 2022 at 1:59pm
True although Manchester and Salem were changing to be younger, at least when I lived there from 2011-2016
MarkW
Nov 17 2022 at 3:43pm
When it comes to sanity in politics, it seems like the lack of a big dominant city is probably a good thing. NH doesn’t have to attract the young and single (who won’t be paying the new tax anyway) but rather the middle-aged millionaires. Is the distance from the Boston metro area across the state border really too far for people to tolerate?
Jon Murphy
Nov 17 2022 at 5:17pm
Definately not. Many people commute from NH to Boston. There are lots of mass transit, too.
diz
Nov 17 2022 at 5:37pm
Not willing to assume getting *even more* people from MA is good for NH. It’s been making them politically more like MA for some time now.
nobody.really
Nov 17 2022 at 2:04pm
Oh, please. In each of these jurisdictions you’d still be subject to the progressive FEDERAL income tax, which utterly swamps the effects of state taxes anyway.
The only real remedy for Henderson is to emigrate to nations such as Kurdistan and Nauru, or live in effectively government-free zones deep in the Amazon or along the Afghan border, or perhaps to embrace seasteading.
Send a postcard!
Jon Murphy
Nov 17 2022 at 2:28pm
Sure, but remember that people live and act on the margin. In total, federal taxes may be much larger than state & local, but state & local still influence people’s behavior on the margin. For example, NFL players sometimes decide who they will play for based on state taxes.
nobody.really
Nov 17 2022 at 3:04pm
Yes, and that’s a fair consequentialist argument. But Henderson was also purports to make an argument based on principle–a principle that seems almost entirely honored in the breach.
I agree that people will make decisions on the margins–and those margins will entail consideration of costs AND BENEFITS. If you use real estate prices as a proxy for the desirability of a place, I think we’d find a correlation between desirability and high taxes. (I suspect this is a wealth effect–rich people have a demand for more of every normal good/service, including public services–but still….)
Finally, if NFL players really picked where to play based on state income tax rates, why don’t more choose to play in New Hampshire? 🙂
Jon Murphy
Nov 17 2022 at 3:39pm
Because there isn’t a team in NH.
Absolutely. Thus my point.
Objection: reasoning from a price change. High prices could signal relatively high desirability (which is to say relatively high demand). Or they could signal relatively low supply. More likely, some combination of the two. But prima facie, we cannot say prices are a proxy for desirability. More information needed.
I don’t know what you mean by this.
MarkW
Nov 17 2022 at 4:53pm
Put it this way. Imagine you own a tech company in Boston. Your workers wouldn’t be subject to the millionaire tax, but you would. Why not move the company over the border (greatly downsizing the office while your at it)? Your workers are remote most of the time anyway. If they have to come in once in a while, they’re not going to care much if they have to drive into NH instead of downtown Boston (they may actually prefer it). That way you, the owner, can escape both the regular MA income tax and the add-on (while still remaining within relatively easy distance of Boston for weekends and such), and you give your workers the choice of staying in MA and paying income tax or moving to NH and not paying.
Thomas Strenge
Nov 18 2022 at 5:39am
There is research showing that pro sports teams in low tax states are winning more games than teams from high tax states. Yes, state taxes matter.
robc
Nov 16 2022 at 7:52pm
Both happened in Colorado last week. “We” voted to lower the flat tax from 4.55% to 4.4%. at the same time another measure applied a special tax on incomes over $300k.
Sanchit
Nov 16 2022 at 9:43pm
David,
Not only is the additional tax itself a problem, the amendment also restricts the appropriation of the revenue spending to education, and repair/maintenance of transportation infrastructure.
Particularly on transportation infrastructure, MA public works projects are associated with poor management, and projects regularly go over budget and face delays. Rather than address the root issues with the department of transportation, we are instead shovelling more money into the pockets of the people in charge of those contracts.
Thomas Lee Hutcheson
Nov 17 2022 at 10:42am
And what’s wrong with progressive taxation?
David Henderson
Nov 17 2022 at 11:14am
Thomas, I give one answer, admittedly briefly, in the piece. The piece is under 500 words long. Did you actually read it?
Knut P. Heen
Nov 17 2022 at 11:57am
What is wrong with a higher tax rate on everyone named Thomas? It is immoral to treat a democratic minority differently from the democratic majority.
nobody.really
Nov 17 2022 at 2:11pm
So why the half-measures? A flat income tax still discriminates against the rich. The only fair tax is a head tax.
But wait–an ANNUAL head tax would discriminate against people in proportion to their longevity. What’s fair about that? The only fair tax is a BIRTH tax.
So let’s look for jurisdictions that operate on fair taxes such as that, and all move there. Any nominees?
Henri Hein
Nov 17 2022 at 2:38pm
I know you are joking, but I actually like the idea. Every parent couple of new-born infants gets a life-time tax bill from the government. They are legally allowed to amortize over a long period, say 30 or 40 years. As the kid grows up, the parents can negotiate with them about which portion the parents pay and which portion is allocated to the kid. If the tax bill is paid off within the legally allowed limit, that child (now adult) is tax-free for life – until they themselves have kids.
nobody.really
Nov 17 2022 at 3:43pm
Fun to contemplate.
1: The birth tax bill would be enormous–a fact that would motivate rather extreme strategies for tax avoidance. So I could imagine new norms whereby a person would agree to have all the kids for all her siblings—and then declare bankruptcy/flee the country/commit suicide, thereby defeating the tax collector while preserving family wealth.
2: Adoption would become extremely competitive. Hard to predict the consequences for abortion policy. Clearly people would want the ability to avoid incurring the birth tax accidentally. But given the anticipated collapse of domestic reproduction, people might also value boosting domestic reproduction by any means possible. That is, you might be willing to gamble that OTHER (careless) people would bear the burden of the unwanted pregnancies, while you would get the benefit of the increased labor supply.
3: Today people speak of birth tourism–wherein foreigners come to have their babies born in the US in order to assure that the baby will have US citizenship. We might instead observe the opposite: Pregnant people leaving the US to have their kids elsewhere.
4: Brian Caplan wanted to normalize greater immigration—even open borders. I expect a birth tax would lead to lower (domestic) reproduction, and thus an increased demand for importing people from abroad.
5: If the birth tax were combined with an immigration tax–treating all people the same, whether produced domestically or abroad, so as to avoid efforts to game the system via immigration–I expect this would result in a declining US population and increased automation/automation. Given the limited supply, I expect domestic labor costs would skyrocket.
But a world with lower marginal taxation would be a world with more efficient price signals, and therefore perhaps a wealthier world. Maybe the wealth generated by this efficiency would offset these other dynamics? That is, maybe the combined effects of people being richer on average, and the increased return on labor, would leave people willing to bear the birth tax?
Thomas Strenge
Nov 17 2022 at 4:02pm
David, don’t make this a glass half empty article. How about, Good News for Florida! Or, Good News for New Hampshire! Doesn’t that sound better?
Glenn Ammons
Nov 17 2022 at 7:57pm
The amendment is bad but not that bad. Politicians won’t be able to lower the threshold or increase the rate without going back to the voters for another amendment. And the threshold is supposed to go up (never down) annually in response to inflation. Politicians could game the inflation rate, of course, but they would need federal politicians to go along.
The actual addition to the constitution is
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