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:

Pioneer Report Spotlights Decade-long Building Boom in Massachusetts Construction Industry

In the lead-up to the COVID-19 crisis, the Massachusetts construction industry enjoyed a boom in select subsectors, though employment numbers had yet to recover from the setbacks of the Great Recession, according to a new report from Pioneer Institute that draws data from the MassEconomix web tool.

Pioneer Checklist Includes Steps for Policy Makers, Business Owners to Revitalize Hardest-Hit Industries

Combining the recommendations of studies published earlier this year, Pioneer Institute has released “A Checklist for How to Revitalize the Industries Hit Hardest by COVID-19.” The recommendations for policy makers are organized in three sections: Immediate Relief, Tax Policy Changes and Permanent Reforms.  Business owner recommendations are split into COVID-19 Health and Safety Protocols, Expanded Services and Steps to Improve Cash Flow.

Pioneer Report Highlights Pre-Pandemic Employment Growth in Massachusetts’ Hospitality & Food Industry

In the lead-up to the COVID-19 crisis, the Massachusetts Hospitality and Food Industry enjoyed generally positive employment growth, according to a new report from Pioneer Institute that draws data from the MassEconomix web tool. Most of the Hospitality and Food Industry employment across the state is concentrated in full-service restaurants and hotels.

Pioneer Report Highlights Employment Growth in Lowell, Massachusetts

In 2018, employment in Lowell, Massachusetts finally surpassed its pre-Great Recession peak, according to a new report from Pioneer Institute that draws data from the MassEconomix web tool. Before COVID-19, job growth in the city was driven largely by a resurgence in manufacturing and a continued high concentration of healthcare firms.

Pioneer Report Underscores Wide Disparities in Economic Performance between Industry Sectors in Massachusetts

Service-based industries have significantly outperformed manufacturing and other traditional blue-collar economic sectors in Massachusetts since 2008, according to a new report from Pioneer Institute that draws on data from the MassEconomix web tool. In “Broad Industry Sector Trends in Massachusetts, 1998-2018,” two decades of data show fluctuating employment changes across the state, as well as changes in firm size and the types of firms disproportionately headquartered in the Commonwealth.

Study: Economic Recovery from COVID Will Require Short-Term Relief, Long-Term Reforms

As the initial economic recovery from the COVID-19 pandemic has slowed, a new study from Pioneer Institute finds that governments must continue to provide short-term relief to stabilize small businesses as they simultaneously consider longer-term reforms to hasten and bolster recovery – all while facing a need to shore up public sector revenues.

New Study Offers Guide to Recovery in MA Retail, Accommodation and Tourism, and Restaurant Sectors

A new guide to economic recovery in the retail and hospitality industries published by Pioneer Institute calls for the federal and state governments to consider consumption-based refundable tax credits for brick and mortar businesses; the federal government to conduct a detailed study of the costs and benefits of suspending employer-side payroll taxes; businesses to pay special attention to developing and marketing their cleanliness, hygiene and contactless procedures; and third-party customer review sites to include comments about the implementation of COVID safety measures to provide options and reassurance to safety-minded consumers

Pioneer Institute Study Calls for Streamlining State Sales Tax Revenue Collection

At a time when state tax revenues are plummeting, a plan to modernize sales tax collection could get money into state coffers more quickly, according to a new policy brief published by Pioneer Institute.

Study: Safely Reopening Office Buildings Will Require Planning, Innovation

0 Comments
/
Safely bringing employees back into workplaces presents a significant challenge for employers located in office buildings, particularly when it comes to elevator operations and building entry and exit.  To address the challenge, managers must develop plans to control the flow of workers, according to a new study published by Pioneer Institute.

Holyoke Soldiers’ Home Study Targets Inadequate Nursing Home Staffing Standards

Standards enforced at the federal and state levels are insufficient to address chronic staffing issues reported by staff and residents’ families at the Holyoke Soldiers’ Home, making that facility particularly vulnerable to the COVID-19 pandemic, according to new Pioneer Institute research.

Time to follow the science, not fear

Over the past two months, we have all learned a great deal about COVID-19 and the efficacy of - and the new challenges created by - our policy responses. Pioneer Institute believes it is time to shift to a more thoughtful, science-based footing in our approach to COVID-19 policymaking. The following are principles for state and local public officials to consider as we move forward.

Where in Massachusetts is being hit hardest by unemployment due to COVID-19?

Pioneer’s new tool, called “COVID Unemployment Tracker,” provides an interactive look at how economic shutdowns in response to the COVID-19 pandemic are affecting jobs and lives across the state of Massachusetts.