Editorial Staff

Proposition 80 Won’t Generate $1.9 Billion Annual Projected Revenue

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

Passage of November 2018 ballot measure will make Massachusetts far less competitive

BOSTON – Passage of Proposition 80, the tax hike proposal scheduled to appear on the November 2018 Massachusetts ballot, will fail to generate the level of revenue growth projected by its backers, according to a new Pioneer study.

Download "Proposition 80 Will Not Raise $2 Billion"

The ballot measure would add a 4 percent surtax on any annual taxable income over $1 million. In “Proposition 80 Will Not Raise $2 Billion and the Money Won’t Be Free,” Pioneer Institute Research Director Greg Sullivan warns that proponents’ projected revenue gains are based on a small pool of taxpayers, some of whom are likely to relocate outside the state if the proposal passes.

According to Massachusetts Department of Revenue data, the majority of the tax revenue Proposition 80 is expected to raise would derive from just 897 of the 19,565 taxpayers who would be subject to the measure. Over time, if even a third of those 897 chose to move, annual revenue from the tax would fall from an anticipated $1.9 billion to $1.1 billion.

The report further finds that there is a high likelihood that they will relocate, given that states with lower tax rates have historically held a distinct advantage in attracting and retaining businesses and wealthy taxpayers.

From 2011–12 to 2014–15, the eight states with no income tax saw a net positive migration of adjusted gross income (AGI) of $65 billion, more than 60 percent of which came from the small percentage of taxpayers with annual AGIs of $200,000 or more. During that same period, the eight states with the highest marginal income tax rates experienced negative AGI migration of $44.23 billion, over 60 percent of which resulted from the relatively small number of migrants with annual incomes of $200,000 or more.

“Those who argue that state tax rates don’t impact where high earners choose to live and where businesses choose to locate inhabit an alternate reality,” said Pioneer Institute Executive Director Jim Stergios. “Proposition 80 backers paint it as a harmless way to boost revenue, but its adoption would pose a direct threat to business and job creation in Massachusetts.”

IRS records show that over 70 percent of Massa­chusetts’ 16,100 taxpayers with AGI over $1 million in 2015 received income from partnerships and sub-chapter S corpo­rations. Proposition 80 would raise the combined federal/state tax rate on partnership and sub-S corporations from 26th to between the second and fourth highest in the U.S.

Large, medium and small businesses alike will face adverse consequences. Small business­es account for nearly half of total employment in Massachusetts. The report features case studies illustrating Proposition 80’s potential impact on three Massachusetts firms:  The RMR Group Inc. in Newton, Cape Cod Lumber in Abington, and Copilabs, Inc. in Lawrence.

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.

###

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

The Causes and Potential Cures for Inflation

This week on Hubwonk, Harvard economist and Pioneer Institute board member Ed Glaeser interviews Larry Summers, former U.S. Treasury Secretary and President Emeritus of Harvard University, for a special episode on the origins of inflation, its impact on the American economy, and a roadmap to recovery.

Sheetal Bahirat Turns a Profit on Food Waste

This week on JobMakers, host Denzil Mohammed talks with Sheetal Bahirat, founder and CEO of Hidden Gems Beverage Company, maker of Reveal Avocado Seed Brew, and immigrant from India. Food waste is an understudied and underutilized component of our daily lives with huge implications for our bodies and the planet - it is the number one contributor to climate change.

How did tax hikes work out for Connecticut?

Pioneer Institute's Charlie Chieppo shares data on the economic impact of tax increases in Connecticut - which has the 2nd highest state and local tax burden in the country and ranks 49th in private sector wage and job growth. As Massachusetts considers a proposal to raise income taxes, it is important to learn from the experience of other states. Learn more.

Income Inequality Explored: Wage Gap Overlooks Government Intervention

This week on Hubwonk, host Joe Selvaggi talks with John F. Early, economist and author of the newly released book, The Myth of American Inequality, about the history of income inequality, its true size, and trends. They also discuss how census data used in policy decision-making misses nearly all the effects of government intervention and distorts the truth about the income American families actually have to spend.

How would a tax increase impact the MA economy?

Pioneer's Charlie Chieppo explains how an income tax hike in Massachusetts will impact retirees and small business owners - not just "the super rich."

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.

WSJ op-ed: Don’t Make Massachusetts ‘Taxachusetts’ Again

Unlike many blue states, Massachusetts has resisted the temptation to raise taxes on high earners. That antitax fortitude is about to be tested. In November, state legislators will ask voters to approve an amendment to the Massachusetts constitution adding a 4% surcharge to annual income over $1 million.

Patrick Anquetil on America’s Freedom to Innovate

This week on JobMakers, host Denzil Mohammed talks with Dr. Patrick Anquetil, immigrant from France and co-founder and CEO of Portal Instruments in Cambridge, Massachusetts, a clinical stage medical device company developing a needle-free drug delivery platform. As Patrick shares, there was no way he could have started a business like this in his home country.

Liya Palagashvili on the Security Threat from Losing Skilled Immigrants

This week on JobMakers, host Denzil Mohammed talks with Dr. Liya Palagashvili, immigrant from the former Soviet Union, Senior Research Fellow at the Mercatus Center at George Mason University, and affiliated research fellow at NYU Law. Dr. Palagashvili shares findings from research she co-authored on the Optional Practical Training (OPT) program, which fills the gap for international students between studying in the U.S. and being employed here through a work visa.