Editorial Staff

Inadequate Inflation Adjustment Factor Will Subject Increasing Numbers of People to So-Called “Millionaires” Tax

/in , , , , , /by Editorial Staff
Share on Facebook
Share on Twitter
Share on
LinkedIn
+

Would take particular toll on those relying on home value appreciation to fund retirement

BOSTON – The tax hike on those with annual taxable incomes of $1 million or more that would result from a proposed amendment to the state constitution scheduled to appear on the Commonwealth’s November ballot will likely ensnare an ever-increasing number of taxpayers because the index used to adjust the million-dollar threshold has historically grown at a far slower rate than both the taxable income of Massachusetts taxpayers and increases in state home values, according to a new study published by Pioneer Institute.

Download “Housing & Who’s a ‘Millionaire’ according to Proposition 80”

“Those who are counting on decades of appreciation in the value of their homes in particular to fund retirement will be in for a shock if Proposition 80 passes,” said Pioneer Institute Research Director and former state Inspector General Greg Sullivan, the author of “Housing & Who’s a ‘Millionaire’ according to Proposition 80.”

Proposition 80 would amend the Massachusetts Constitution to impose a 4 percent surcharge on any annual taxable income over $1 million, creating a top state personal income tax rate of 9.1 percent.  Unlike the federal government, which considers income and capital gains taxes separately, capital gains from sale of a home could push taxpayers into a different tax bracket and subject them to the higher rate.

Proposition 80 would use the Consumer Price Index for All Urban Consumers (CPI-U) to adjust the million-dollar threshold for inflation.  But while the index rose by 47.1 percent from 1997 to 2015, the taxable income of Massachusetts taxpayers rose 105.7 percent.

The divergence is even greater when it comes to home values.  Between 1977 and 2017 single-family home prices in Massachusetts increased more than nine-fold (935 percent).  In Suffolk, Norfolk, Plymouth, Middlesex and Essex counties the increase was almost eleven-fold (1,072 percent).  Over the same period, the CPI-U rose 304 percent.

Assume that a taxpayer earning the average annual adjusted gross income for his or her municipality purchased the average-priced single-family home in the community in 1997.  If the CPI-U and home price increases in that community both continued at the historical rate, taxpayers in 13 Massachusetts municipalities who sold their home in 2027 would be subject to the higher Proposition 80 tax.  If you apply the same assumptions to a homeowner purchasing a home in 2017 and selling it in 2047, taxpayers in 52 communities would be forced to pay the higher tax.

The fact that the taxable income of Massachusetts taxpayers grew approximately twice as fast as the CPI-U rose between 1997 and 2015 would result in bracket creep if voters approve Proposition 80 and historical trends continue.  A taxpayer with taxable income of $850,000 in 2019 would be subject to Proposition 80 taxes in 2028.  One earning $700,000 in 2019 would have to pay in 2039.

“Over time, if passed, Proposition 80 will affect more and more taxpayers – it will be a state version of the Alternative Minimum Tax,” said Jim Stergios, Executive Director of Pioneer Institute. “It’s a bait and switch.”

Since Proposition 80 would amend the state constitution, the Legislature could not simply pass a law to abolish or amend it.  Doing so would require another constitutional amendment, which would take a minimum of three years.

About the Author

Gregory Sullivan is Pioneer’s Research Director. Prior to joining Pioneer, Sullivan served two five-year terms as Inspector General of the Commonwealth of Massachusetts and was a 17-year member of the Massachusetts House of Representatives. Greg holds degrees from Harvard College, The Kennedy School of Public Administration, and the Sloan School at MIT.

About Pioneer

Pioneer Institute is an independent, non-partisan, privately funded research organization that seeks to improve the quality of life in Massachusetts through civic discourse and intellectually rigorous, data-driven public policy solutions based on free market principles, individual liberty and responsibility, and the ideal of effective, limited and accountable government.

Get Updates on Our Economic Opportunity Research

Related Posts:

Latest IRS Migration Data Show Exodus from Massachusetts Continues

Massachusetts shed more than double the amount of adjusted gross income (AGI) in 2022 than any year prior to 2020, making it fifth among states in net AGI out-migration behind only California, New York, Illinois and New Jersey, according to data released Thursday by the Internal Revenue Service. 

Study Finds Prevalence of Entrepreneurship Tied to Regulatory Environment, Portion of Immigrants

The prevalence of entrepreneurship is linked to both the regulatory environment and the portion of foreign-born immigrants in a jurisdiction, according to a new study published by Pioneer Institute.

Study Finds Supply Shortage at the Heart of Greater Boston Housing Crisis

Construction costs, land use regulation and zoning among…

Statement on Massachusetts Falling from 34th to 46th on Tax Foundation’s 2024 Business Tax Climate Index

Massachusetts policymakers should pay close attention to the latest evidence of the Commonwealth’s declining competitiveness. Last week, the Tax Foundation published its 2024 State Business Tax Climate Index, which showed Massachusetts’ ranking falling more than any other state, from 34th to 46th.

Poll: MA Voters Oppose Legislative Proposals to Change Tax Rebate Law

A strong majority of registered Massachusetts voters oppose a plan recently announced by state legislative leaders that would change the way tax rebates are distributed in Massachusetts under a state law approved by voters in 1986, according to a new poll sponsored by Pioneer Institute and the Massachusetts High Technology Council.

Study: Immigrant Entrepreneurs Benefit N.E. Economy, Despite Facing Obstacles to Growth

BOSTON – Immigrants in Massachusetts and New England are more likely to be self-employed, but the businesses they own tend to be in different industries than those owned by the U.S. born, according to a new study published by Pioneer Institute.

Public Statement on the House’s Proposed Tax Reform and Budget

Pioneer Institute applauds key tax reform provisions advanced by the Speaker and House leadership, including a reduced short-term capital gains tax rate and implementation of a single sales factor apportionment. But leadership must do more to bolster the state’s economic competitiveness and slow out-migration of wealth and business owners that endangers the commonwealth’s economic future.

Report: Immigrant Entrepreneurs Provide Economic Benefits, but Face Significant Obstacles

Immigrants have started a quarter of all businesses in Massachusetts despite making up just 17 percent of the state workforce, and those establishments appear to be more innovative than those founded by native-born Americans. Despite these contributions, shrinking federal visa caps and red tape are among the factors making it more difficult for immigrants to come to the U.S., according to “Immigrant Entrepreneurs and the Barriers They Face: An Academic Literature Review,” published by Pioneer Institute. 

Pioneer Institute Statement on Question 1

Yesterday, voters came closer than many expected to rejecting the largest tax increase in Massachusetts history, even though opponents were dramatically outspent by the unions that bankrolled the amendment to the state Constitution. 

Study: Legislators Must Answer Key Questions Before Setting Policy for App-Based Rideshare/Delivery Workers

After Massachusetts’ Supreme Judicial Court declared an initiative that was to appear on the November ballot unconstitutional, the issue of how to classify app-based rideshare/delivery workers is back in the hands of the state Legislature.  A new study published by Pioneer Institute distills from the research literature eight questions legislators must answer before determining how to address this fast-growing industry.

Pioneer Institute Expects That Massachusetts Taxpayers Will Be Refunded $3.2B Due To State Revenue Cap

Pioneer Institute projects that the state will refund approximately $3.2 billion to taxpayers due to a state law sponsored by Citizens for Limited Taxation and voted on by taxpayers in 1986 that caps the amount of revenue the state can collect in any given year.

Survey of Business Sentiment: MA Income Tax Hike Would Lead to Employer Exodus

Nearly three quarters (73 percent) of Massachusetts business leaders think business associates will leave the state if a constitutional amendment appearing on the November ballot to hike taxes is successful, according to a survey conducted by Pioneer Institute.