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

Pioneer Institute Statement on Governor Baker’s New COVID Restrictions

Read Pioneer Institute's public statement about Gov. Charlie Baker's new executive orders related to the state’s reopening plan that will go into effect on Nov. 6, issued in response to a significant uptick in COVID infections in Massachusetts,

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.

Small Business Life Support: Policy Relief for Firms Sickened by COVID?

0 Comments
/
Host Joe Selvaggi talks with Pioneer Institute’s Andrew Mikula and Retailers Association of Massachusetts' Jon Hurst about the state of small business in Massachusetts six months into the pandemic.

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.

Effects of Covid-19 on the Accommodation and Food Services Industry

0 Comments
/
Since March, lockdowns and safety regulations from the Covid-19 pandemic have dramatically affected the Accommodation and Food Services industry. The sector is predicted to lose at least 2.1 billion dollars in Massachusetts before recovering. These losses affect individuals, businesses, and Massachusetts’ economy as a whole. 

Massachusetts PPP Benefits Big Businesses, Data Called Into Question

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

PPP Loan Tracker

To advance transparency regarding public funds, Pioneer Institute developed this Paycheck Protection Plan Loan Tracker. This web tool allows you to track PPP loans by recipient, lender, location, industry, and loan range. According to this data, from the Small Business Administration, 18,177 Massachusetts small businesses received PPP loans, which the companies claim retained 738,613 jobs.

One UMass System, Different Reopening Plans

0 Comments
/
One UMass System, Different Reopening Plans On March 11, UMass…