Editorial Staff

Study: New Federal Tax Law Would Exacerbate Economic Damage of Prop 80

/0 Comments/in , , , , /by Editorial Staff
Share on Facebook
Share on Twitter
Share on
LinkedIn
+

This report earned media coverage on WGBH radio, WBZ radio, and Fox 25 TV, Bloomberg radio; The Boston Globe, the Associated Press, MassLive/The Springfield Republican, Newburyport News, Gloucester Times, Salem News, Lawrence Eagle-Tribune, Greenfield Recorder, CommonWealth magazine, and The Lowell Sun.

Cap on state and local tax deductions to hit Massachusetts hard

BOSTON – Recent passage of the federal tax overhaul legislation will exacerbate the negative economic impact of Proposition 80, the proposed constitutional amendment scheduled to appear on Massachusetts’ November ballot that would add a 4 percent surtax on annual taxable income over $1 million, according to a new study published by Pioneer Institute.

Download New Report

“The combined effect of Proposition 80 and the Tax Cuts and Jobs Act’s $10,000 limit on deductions for state and local taxes will double the Commonwealth’s effective state tax rate for high-income taxpayers,” said Pioneer Executive Director Jim Stergios. “That is not a good calling card for Massachusetts.”

Pioneer Insti­tute’s analysis of data promulgated by the Internal Revenue Service on components of federal tax returns filed by Massa­chusetts taxpayers demonstrates that the average amount of state income tax paid by a taxpayer with a taxable income greater than $1 million would more than double (after adjustment for the decreased value of the federal tax item­ized deduction) from $153,152 to $318,095.

The proposed constitutional amendment would make Massachusetts’ top marginal income tax rate the nation’s fifth highest.

Practically speaking, the Commonwealth’s top marginal income tax rate would likely rank even higher than fifth if Proposition 80 is adopted, because Massachusetts doesn’t allow deductions for a number of expenses, including home mortgage interest, and limits other deductions such as employees’ contributions to pension plans, that are allowed in California, Maine, Iowa, and Minnesota – the four states with the highest income tax rates.

Massachusetts is also the only state that has a separate, higher tax rate for gains realized from the sale of securities within a year of purchase.  If Proposition 80 is adopted, that rate would rise to 16 percent, highest in the nation.

Nationally, the eight states with no income tax saw an in-migration of about $65 billion in adjusted gross income (AGI) between 2011-12 and 2014-15.  The eight states with the highest income tax rates saw an out-migration of more than $44 billion over that period.

Between 1992-93 and 2014-15, Massachusetts had a net outflow of $15.9 billion in AGI.  Nearly three quarters went to Florida and New Hampshire, both of which have no state income tax.

Every taxpayer whose AGI is in the top one-thousandth of 1 percent who leaves Massachusetts for a state with no income tax would save – and the Commonwealth would lose – about $13.5 million annually.

“The idea that Proposition 80 will generate free money for the Commonwealth with no down side flies in the face of evidence from Massachusetts,” said Pioneer Executive Director Jim Stergios. “Over the past two decades, the net outflow of wealth to Florida and New Hampshire has already been pronounced.  Passage of Proposition 80 will speed the exodus of wealth from Massachusetts and could turn the Commonwealth into Connecticut, with stagnant revenues and a reputation for being unfriendly to business.”

Click on image to view full graphic:

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

Pioneer Institute Releases Examination of  Metropolitan Housing Markets; Obtains Insights Into Improving Affordability 

Boston, Mass. – A Pioneer Institute review of reforms enacted in metropolitan areas across the country finds that to achieve more affordable housing in the coming decades, Greater Boston should focus on policies such as making it easier to build small multi-family projects, retrofit commercial areas with new housing, and loosen parking and minimum lot size requirements.

Pioneer Institute Study Finds Massachusetts Saw Four-Fold Loss of Income to Net Outmigration

Net loss accelerated in recent years; main reasons include high taxes, housing and healthcare 

Pioneer Institute Study Finds Wide Range of Approaches to Compliance with MBTA Communities Law

Lexington’s approach seen as a model BOSTON – As Massachusetts’…

Study: U.S. Immigration System Limits Benefits Foreign Students Could Provide

Slow, inefficient system that discourages entrepreneurship puts U.S. at a competitive disadvantage

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.

As States Compete for Talent and Families, Massachusetts Experienced a Six-Fold Increase in Lost Wealth Compared to a Decade Earlier

With competition for businesses and talent heating up across the country, in 2020 Massachusetts shed taxpayers and wealth at a clip six times faster than even just a decade ago. Between 2010 to 2020, Massachusetts’ net loss of adjusted gross Income (AGI) to other states due to migration grew from $422 million to $2.6 billion, according to recently released IRS data now available on Pioneer Institute’s Massachusetts IRS Data Discovery website. Over 71 percent of the loss was to Florida and New Hampshire, both no income tax states.

Book Reveals How Tax Hike Amendment Would Damage Commonwealth’s Economic Competitiveness

If adopted, a constitutional amendment to hike state taxes that will appear on the ballot in November could erase the hard-earned progress Massachusetts has achieved toward economic competitiveness over the last 25 years and may not result in any additional education and transportation funding, according to a new book from Pioneer Institute, entitled Back to Taxachusetts?: How the proposed tax amendment would upend one of the nation’s best economies, which is a distillation of two dozen academic studies.