Editorial Staff

New Study Warns Graduated Income Tax Will Harm Many Massachusetts Retirees

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

Read coverage of this report in The Boston Herald: “Study says Massachusetts “millionaires tax” wouldn’t just hit the mega rich“

BOSTON – If passed, a constitutional amendment to impose a graduated income tax would raid the retirement plans of Massachusetts residents by pushing their owners into higher tax brackets on the sales of homes and businesses, according to a new study published by Pioneer Institute. The study, entitled “The Graduated Income Tax Trap: A retirement tax on small business owners,” aims to help the public fully understand the impact of the proposed new tax.

National data from the U.S. Treasury Department show that the majority of taxpayers earning more than $1 million in a year did so only once over a nine-year period. Data Pioneer Institute recently obtained from the Massachusetts Department of Revenue make it clear that this phenomenon hits close to home as well.

“A graduated income tax would be more of a raid on retirement nest eggs than a tax on super wealthy millionaires,” said Andrew Mikula, who co-authored the study with Greg Sullivan. “In Massachusetts, 46 percent of the people who would be affected by the tax — those who earned incomes over $1 million — did so only once in 10 years. Sixty percent did so only once or twice in the 10-year period that ended in 2017. These are likely people selling a business or a home.”

Evidence from other states heightens the concern that older adults are willing to move to protect their retirement nest eggs. After California passed an income tax hike in 2012 that had a similar impact on seniors, it witnessed a wave of out-migration among its more senior population the following year. In 2012, California lost about $87 million in taxable income from net out-migration of people aged 65 and older. That number exploded to $1.26 billion in 2013. Meanwhile, other amenity-rich Sunbelt states, notably Florida, have thrived by attracting wealthy retirees and other migrants with low taxes and a friendly business climate.

Data also show that nearly half of the capital gains earned in the U.S. from 2007-2012 were from pass-through businesses, another common source of retirement funding. Pass-through entities are usually small businesses that pay taxes via the personal income returns of their owners. Over the period 2007-2012, capital gains from U.S. pass-through businesses totaled more than double those from stocks, bonds, and mutual funds combined. Owners that sell these businesses to pay for their retirement could see their tax bills on those capital gains rise by 80 percent under the surtax.

The surtax could similarly affect long-time homeowners in areas with sharply rising home prices. In some communities in Massachusetts, such as Cambridge, the median single family home price rose by more than $1 million between 1995 and 2020. While a tax exclusion of up to $500,000 for joint filers would apply to sales of these homes, a graduated income tax could blindside elderly people relying on accrued real estate value to fund their retirement.

“This surtax would devastate the retirement plans of many Massachusetts residents,” said Pioneer Institute Executive Director Jim Stergios. “Proponents of the tax haven’t thought about the incentive it creates to change one’s domicile to low- or no-tax states as Massachusetts residents approach retirement, nor the deterrent it would create to investment.”

About the Authors

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 is a Certified Fraud Investigator, and holds degrees from Harvard College, The Kennedy School of Public Administration, and the Sloan School at MIT.

Andrew Mikula is Economic Research Analyst at Pioneer Institute. Mr. Mikula was previously a Lovett & Ruth Peters Economic Opportunity Fellow at Pioneer Institute and studied economics at Bates College.

About Pioneer

Pioneer’s mission is to develop and communicate dynamic ideas that advance prosperity and a vibrant civic life in Massachusetts and beyond.

Pioneer’s vision of success is a state and nation where our people can prosper and our society thrive because we enjoy world-class options in education, healthcare, transportation, and economic opportunity, and where our government is limited, accountable and transparent.

Pioneer values an America where our citizenry is well-educated and willing to test our beliefs based on facts and the free exchange of ideas, and committed to liberty, personal responsibility, and free enterprise.

Get Updates on Our Economic Opportunity Research

Related Posts

Will the COVID-19-related economic recession cause a spike in crime?

0 Comments
/
Intuitively, it makes sense that people replace legitimate business…

State Ranking: Michigan, Hawaii, Rhode Island, Pennsylvania, and Nevada have been hardest-hit by COVID-19 jobless claims so far. Massachusetts ranks as 9th hardest-hit.

0 Comments
/
The U.S. Department of Labor reported today that in the week ended April 4, the advance number of seasonally-adjusted initial jobless claims was 6,606,000. This follows 6,867,000 initial claims filed in the week ended March 28 and 3,307,000 in the week ended March 21.

COVID-19 unemployment surge is on pace to wipe out the MA Unemployment Reserve Fund within three months

0 Comments
/
The unprecedented surge of COVID-19- related unemployment claims that began two weeks ago is on pace to wipe out the MA unemployment Reserve Fund within three months, which will force state leaders to turn to the federal government for a bailout loan.

Report: MA Likely to See Sharp Spike in Unemployment Rate

The COVID-19 recession could cause Massachusetts’ unemployment rate to skyrocket to 25.4 percent by this June, according to a new policy brief published by Pioneer Institute. The authors recommend that the state join others in lobbying Congress for large block grants to avoid a severe fiscal crisis.

Pioneer Launches Report Series Highlighting Massachusetts Job Growth and Business Trends Since 1998

In “Some Big, Broad Economic Trends in Massachusetts,” Pioneer analysis of two decades of data shows fluctuating employment changes across the state, as well as firm size information and the largest employers. The report is part one of aa series that aims to provide deeper insight into COVID-19's economic impact.

New Policy Brief on Federal Relief Act’s Impact on Massachusetts

0 Comments
/
Greg Sullivan and Charlie Chieppo review the impact of the Coronavirus Aid, Relief, and Economic Security Act on Massachusetts' budget.

Congress should fix aid, provide block grants

0 Comments
/
This op-ed by Greg Sullivan and Charlie Chieppo appeared in the…

Public Statement: Extend Massachusetts’ Income Tax Filing Deadline

0 Comments
/
Massachusetts must extend the tax filing deadline, just as the federal government and 34 of the 41 states that tax income have done.

Why Are We So Scared And Impatient?

0 Comments
/
This op-ed by Barbara Anthony appeared in WGBH News on March…

Financial Disclosures – As Important Now as Ever

0 Comments
/
News sources report that certain senators sold stocks just before the market crashed when the economic impact of Coronavirus came to light. Now more than ever, financial disclosures must be accessible to the media and to the public.

Public Statement on Massachusetts’ Emergency Order Aiming to Curb the Spread of the Coronavirus

Governor Baker’s issuance of an emergency order is a wake-up call to recognize the extraordinary actions needed at this moment to stem the upsurge in coronavirus infections. It is also a reminder to be vigilant about our liberties. 

Pioneer Report Offers Framework for Improving Greater Boston’s Global Competitiveness

Pioneer’s new report, Greater Boston as a Global Competitor, provides useful metrics to help Massachusetts formulate a strategy to become an even more attractive place for innovators and talent.