Report: Proposed Graduated Income Tax Might Not Increase State Education and Transportation Spending

Share on Facebook
Share on Twitter
Share on
LinkedIn
+

Legislature could devote new revenue to public education and transportation, but cut funding from existing sources by the same amount

BOSTON – While supporters of a Massachusetts constitutional amendment that would impose a 4 percent tax rate hike on annual income over $1 million claim additional revenue from the surtax will fund public education and transportation needs, the amendment in no way assures that there will be new spending on these priorities. In fact, without violating the amendment, total state education and transportation funding could stay the same or even fall, according to a new review published by Pioneer Institute.

Total state education and transportation funding is currently around $8.5 billion annually.  Under the proposed amendment, the Legislature could dedicate the nearly $2 billion in additional revenue supporters of the graduated income tax claim it would generate to education and transportation, but cut funding from other sources from $8.5 billion to $6.5 billion, leaving total state spending in those areas exactly where it had been before.

“As a practical matter, every dollar the graduated income tax generates could be siphoned off to some other purpose without violating the text of the proposed constitutional amendment,” said Kevin Martin, author of “The Graduated Income Tax Amendment – A Shell Game?

The Massachusetts Constitution requires a flat income tax rate.  On five occasions in the last 60 years, voters were asked to amend the constitution to eliminate the ban on a graduated tax rate.  Each time they refused.

In the runup to the 2018 election cycle, proponents of a graduated income tax attempted to overcome the unpopularity of their cause by earmarking new revenue from a 4 percent rate hike on annual income over $1 million for public education and transportation spending.

The proposed constitutional amendment never made it to the voters. The Commonwealth’s Supreme Judicial Court (SJC) ruled in Anderson v. Healey that the proposed amendment violated a ban on citizen-initiated ballot questions that combine unrelated subjects, as the amendment proposed both a new graduated income tax and a directive that any additional revenues would go to two disparate spending areas.

The court’s assertion of a constitutional ban on combining unrelated subjects does not apply to constitutional amendments proposed by the Legislature. In 2019, Beacon Hill tax hike supporters responded to the court’s decision by voting to approve the graduated income tax in a constitutional convention vote. If passed at a second constitutional convention, the measure will be placed as a question on the 2022 statewide ballot.

Attorney General Maura Healey’s own brief in the 2018 case reads: “the Legislature could choose to reduce spending in specified budget categories from other sources and replace it with new surtax revenue.”

When the late SJC Chief Justice Ralph Gants asked the Attorney General’s counsel during oral argument whether she agreed that, if the graduated income tax passed, it “may or may not result in any increase in education or transportation spending,” counsel responded that the Chief Justice’s understanding was correct.

More recently, during legislative debates on the proposed ballot measure, an amendment was offered that would have required the new tax revenues to be spent incrementally on education and transportation, over and above what already is spent. That amendment was defeated.

“Massachusetts’ flat income tax rate of 5 percent has served the state well. The Bay State has outcompeted our regional rivals and drawn in jobs and investment from higher-tax jurisdictions like New York, Connecticut, and California,” said Pioneer Executive Director Jim Stergios. “The debate on the graduated tax is simply this: does the Legislature care more about attracting jobs and investment to the private sector, which represents 97 percent of Massachusetts workers, or will they bow to the wishes of powerful public sector unions who represent 3 percent of Massachusetts workers? The question is especially important now given how hard-hit private sector employment was by the pandemic.”

About the Author

Kevin Martin is a partner and co-chair of the Appellate Litigation Group at Goodwin Procter LLP in Boston, where he has practiced since 2001.  He was counsel for the plaintiffs in Anderson v. Healey, the 2018 decision in which the Supreme Judicial Court excluded the graduated income tax from that year’s ballot.  Prior to joining Goodwin, Kevin clerked for U.S. Supreme Court Justice Antonin Scalia (2000-2001), and Judge Laurence Silberman on the U.S. Court of Appeals for the District of Columbia Circuit (1999-2000).  From 2010-2011, he served as deputy independent counsel representing the SJC in an investigation into corruption in the Massachusetts Probation Department.  He currently is vice chair of the board of directors of the New England Legal Foundation.  Kevin graduated from Columbia Law School in 1999 and Georgetown University’s School of Foreign Service in 1996.

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 Content

Hong Tran Goes from Refugee to Realtor

This week on JobMakers, host Denzil Mohammed talks with Hong Tran, a Worcester, Massachusetts-based realtor and small business owner who emigrated to America as an orphaned refugee from Vietnam.

Sandro Catanzaro Takes His American Dream to Mars and Back

This week on JobMakers, host Denzil Mohammed talks with Sandro Catanzaro, who started several businesses in his native Peru but had no idea he’d end up helping NASA go to Mars, or that he’d use that same technology to plan and buy video ad campaigns. Now Head of Publisher Services Strategy for Roku, which acquired the company he founded, dataxu, in 2019, Mr. Catanzaro is an emblem of ingenuity and inventiveness. His demand-side platform, device graph technology and analytics platform help accelerate Roku’s ad tech roadmap and ability to serve a wide array of advertisers. But he’s not done yet!

Study: Graduated Income Tax Proposal Fails to Protect Taxpayers from Bracket Creep

The state constitutional amendment proposed by the Service Employees International Union and the Massachusetts Teachers Association to add a 4 percent surtax to all annual income above $1 million purports to use cost-of-living-based bracket adjustments as a safeguard that will ensure only millionaires will pay. But historic income growth trends suggest that bracket creep will cause many non-millionaires to be subject to the surtax over time, according to a new study published by Pioneer Institute.

Pioneer Institute, The Immigrant Learning Center Co-Produce New Weekly Podcast

Pioneer Institute is pleased to announce the launch of JobMakers, a new weekly podcast that explores the world of risk-taking immigrants who create new products, services, and jobs in New England and across the United States. JobMakers is produced in collaboration with The Immigrant Learning Center (ILC) of Malden, MA.

Christina Qi Goes From Welfare to Wall Street 

This week on JobMakers, Host Denzil Mohammed talks with Christina (Chi) Qi, who started a hedge fund at just 22. They discuss her background and journey, moving with her family from China to Utah, being on welfare, and then attending MIT. She went on to co-found Domeyard, a quantitative trading firm, in 2013, among the longest running high-frequency trading hedge funds in the world, and was trading up to $7 billion dollars a day. In 2019, she founded Databento, an on-demand data platform for asset managers and quantitative analysts. They discuss how being an immigrant, Asian, and a woman in the cutthroat, male-dominated world of Wall Street didn’t deter her from success.

New Study Warns Graduated Income Tax Will Harm Many Massachusetts Retirees

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.

Herby Duverné Keeps Americans Safe & Gives Back

Welcome to JobMakers, a new, weekly podcast, produced by Pioneer Institute and The Immigrant Learning Center. Host Denzil Mohammed explores the world of risk-taking immigrants, who create new products, services and jobs in New England and across the United States. In the debut episode, Denzil talks with Herby Duverné, CEO at Windwalker Group, an award-winning small business with more than 25 years of experience in physical and cybersecurity solutions that protect and prepare companies through custom learning and training solutions.

Study: Graduated Income Tax Proponents Rely on Analyses That Exclude the Vast Majority Of “Millionaires” to Argue Their Case

Advocates for a state constitutional amendment that would apply a 4 percent surtax to households with annual earnings of more than $1 million rely heavily on the assumption that these proposed taxes will have little impact on the mobility of high earners. They cite analyses by Cornell University Associate Professor Cristobal Young, which exclude the vast majority of millionaires, according to a new study published by Pioneer Institute.

Hoover Institution’s Dr. Eric Hanushek on COVID-19, K-12 Learning Loss, & Economic Impact

/
This week on “The Learning Curve," Gerard and Cara talk with Dr. Eric Hanushek, the Paul and Jean Hanna Senior Fellow at Stanford University’s Hoover Institution. They discuss his research, cited by The Wall Street Journal, on learning loss due to the pandemic, especially among poor, minority, and rural students, and its impact on skills and earnings.

Report Contrasts State Government and Private Sector Employment Changes During Pandemic

Massachusetts state government employment has been virtually flat during COVID-19 even as employment in the state’s private sector workforce remains nearly 10 percent below pre-pandemic levels, according to a new study published by Pioneer Institute. The study, “Public vs. Private Employment in Massachusetts: A Tale of Two Pandemics,” questions whether it makes sense to shield public agencies from last year’s recession at the expense of taxpayers.

A wealth tax, a SCOTUS case, and a likely Mass. exodus

/
Op-ed in The Boston Globe: A case New Hampshire filed with the US Supreme Court last October against the Commonwealth of Massachusetts could have a huge impact on state finances nationwide. It also raises the stakes as the Massachusetts Legislature considers amending the state constitution to eliminate the state’s prohibition against a graduated income tax and to hike taxes on high earners.

Study Finds Massachusetts Graduated Income Tax May Be a “Blank Check” and Not Increase Funding for Designated Priorities

Advocates claim a proposed 4 percent surtax on high earners will raise nearly $2 billion per year for education and transportation, but similar tax hikes in other states resulted in highly discretionary rather than targeted spending, according to a new policy brief published by Pioneer Institute. That same result or worse is possible in Massachusetts because during the 2019 constitutional convention state legislators rejected — not just one, but two — proposed amendments requiring that the new revenues be directed to these purposes.