O’Day Expects Opponents to Spend “Tons of Cash”
With a vote of the House and Senate Wednesday afternoon, the Massachusetts Legislature effectively kicked off a year-and-a-half-long ballot campaign around the proposed constitutional amendment to increase taxes on the wealthy and move away from the state’s flat income tax rate structure.
The House and Senate, meeting jointly in a Constitutional Convention to consider proposed amendments to the state’s Constitution while the State House remains closed to the public, voted 159-41 Wednesday to let voters decide on the 2022 statewide ballot whether to impose a new 4 percent surtax on annual household income over $1 million. The measure (S 5) needed 101 votes to advance.
Only one Republican, Sen. Patrick O’Connor of Weymouth, voted to advance the amendment while nine Democrats — Reps. Brian Ashe, Ann-Margaret Ferrante, Michael Finn, William Galvin, Colleen Garry, Chris Markey, Angelo Puppolo, Paul Schmid and Jonathan Zlotnik — voted in opposition.
The vote marks the successful conclusion of the legislative process for surtax supporters led by Raise Up Massachusetts, the coalition of labor, community and faith-based groups that has secured minimum wage increases, a new paid family and medical leave program and guaranteed earned sick time in recent years. But it also marks the start of a campaign to convince regular voters around Massachusetts to substantially reshape the state’s tax structure.
“Taxpayers at the lower end of the income scale pay a greater percentage of their annual income in state and local taxes than our higher-income taxpayers do. This is deeply unfair,” Sen. Jason Lewis, who co-sponsored the amendment in the Legislature, said. “The fair share amendment that is before us once again today would make our tax system more equitable, and it would raise substantial new revenue to support public investments that are critical to our recovery from the pandemic and to building a more just economy.”
Democrats on Beacon Hill have been pursuing the tax policy change for years and supporters say the surtax could generate $2 billion per year, earmarked for education and transportation, without dipping into the pockets of most residents. The change is proposed as a constitutional amendment because the Constitution currently requires that a tax on income be applied evenly to all residents. The state income tax rate is currently 5 percent.
If the surtax is approved by voters, the first $1 million of household income would still be taxed at the 5 percent rate and all household income above and beyond that first $1 million would be taxed at an effective rate of 9 percent.
Before the 200 elected representatives and senators voted, debate on the topic followed the same contours that have defined the issue for the last several years. Supporters like Lewis and Rep. Jim O’Day argued that the amendment is necessary to combat income inequality in Massachusetts and to provide a sustainable revenue source for education and transportation. Opponents like Minority Leaders Rep. Brad Jones and Sen. Bruce Tarr cautioned that the surtax will likely affect more than just the taxpayers who already report household income over $1 million and warned that it could lead to an exodus of wealthy Bay Staters.
“We know that this will not only affect folks that have incomes, year after year, of a million dollars, it will affect the incomes of folks that may be proprietors of small businesses and those who would sell a home. And we know … that even if that were not true, the effect of the question would be to place the burden of the promise that would be made by this amendment on 20,000 taxpayers — roughly, that number changes — who’ve already exhibited highly-mobile behavior,” Tarr said. He added, “In good conscience, I have to sound the warning of all of the things that could happen here that I don’t believe anyone in the commonwealth of Massachusetts would want to see.”
While labor unions, progressive-minded organizations and Democratic lawmakers celebrated, condemnation of the Legislature’s vote came swiftly Wednesday afternoon.
Paul Craney, a spokesman for the Massachusetts Fiscal Alliance, said Beacon Hill Democrats “will use today as a rallying cry to raise taxes on the rich and if they are successful, they will make sure we are all considered rich when the taxes are due.”
The Massachusetts chapter of the National Federation of Independent Business said it was disappointed that the Legislature advanced the graduated income tax proposal and warned that it will harm small businesses already hurting from the pandemic.
“The proposal’s supporters conveniently omitted that many small businesses who file as pass-through entities for tax purposes will be impacted by the higher tax rate,” NFIB State Director Christopher Carlozzi said. “Those business owners who spent a lifetime building their business, providing jobs, paying taxes, participating in their communities, will be penalized with a higher taxes when they sell their business to retire.”
During his floor remarks, O’Day pre-emptively rejected similar claims from opponents by claiming that “businesses earning over a million dollars, in my estimation, are not small businesses.”
The West Boylston representative also shot down the argument that the passage of the surtax amendment would kick off a trend of wealthy residents and businesses packing up and moving out of Massachusetts.
“The fair share amendment has been a topic of discussion for at least eight years in one form or another,” he said. “If businesses and billionaires really wanted to leave — it’s not like we’re just pulling this out of a bag last night to talk about it, we’ve been talking about it ad nauseam — if they didn’t like it here, they would have left long before now.”
Income Surtax, Take Two
The initial petition that launched the surtax effort was filed in August 2015 by Raise Up. Attorney General Maura Healey certified the constitutional amendment as ballot-eligible in September 2015, and the Department of Revenue concluded that year it would generate about $1.9 billion in revenue annually.
The Democrat-controlled Legislature twice endorsed the citizens petition for the 2018 ballot despite Republican opposition, voting 135-57 in 2016 and then 134-55 to advance it in June 2017.
But then the wheels fell off. Three major business groups — the Massachusetts High Technology Council, Mass. Taxpayers Foundation and Associated Industries of Massachusetts — filed suit, which worked its way up to the Massachusetts Supreme Judicial Court. In June 2018, the SJC tossed the question from the ballot, ruling that it improperly mixed two different spending priorities and a major change in tax policy.
The state Constitution allows initiative petitions to contain only subjects that are “related” or “mutually dependent,” and the lawsuit argued that the proposed surtax improperly bundled unrelated subjects of a graduated income tax and spending on education and transportation.
Democrats have gotten around that rule this year by having legislators, who are not bound by the same restrictions, file the petition directly.
In June 2019, House and Senate members voted 147-48 in favor of the amendment, setting themselves to send the question to voters with their vote Wednesday.
Aside from letting the income tax rate fall in small increments in recent years to 5 percent, the level voters approved in a 2000 ballot question, Beacon Hill has largely steered clear of changes to the state’s two big taxes — sales and income — since 2009, when the Legislature raised the sales tax rate from 5 percent to 6.25 percent.
Wednesday’s vote took place while Massachusetts is flush with cash. Legislative leaders and the governor are playing tug-of-war over control of about $5.2 billion in federal American Rescue Plan Act funding and the Department of Revenue is on pace to collect nearly $4 billion more in tax revenue than the Baker administration expected it would this fiscal year.
The November 2022 Ballot
The income surtax amendment could become something of a center of gravity for the 2022 election cycle in Massachusetts, especially in the race for governor.
Ben Downing, a former Democratic senator who is running for governor, said Wednesday he looks forward to working to pass the ballot question in 2022 and called it “a chance for us to begin to remedy the inequity that plagues our state and build a fairer, stronger Massachusetts for all 351 cities and towns.”
Gov. Charlie Baker has not said whether he intends to run for a third term in 2022 and he’s also not outlined a clear position on the income surtax. Baker’s office did not offer a response to Wednesday’s vote, but the Republican governor generally does not favor tax increases.
All of the state’s Constitutional offices and all 200 seats in the Legislature will also be on the November 2022 ballot, and Mass. Fiscal suggested that’s when voters could let Democrats who advanced the surtax amendment know how they feel about it.
“The voters should not forget or forgive this level of greed and they will have another chance to hold them accountable in 2022,” Craney said.
Surtax supporters were confident about going to the ballot in 2018, too, before the SJC derailed that campaign. Raise Up and the legislative sponsors said after Wednesday’s vote that they are confident the question will actually go to voters next year but acknowledged that the campaign will be long and bruising.
“We feel that we’re on really solid ground, but I’m sure the opponents of this are going to look under any rock, every rock, to try to find some kind of way from preventing themselves from having to pay their fair share,” O’Day told reporters in the hallway outside the House Chamber. “They are the ones, obviously, that will have the ability to throw a ton of cash at this issue and that’s probably how they’re going to try to beat it. They’d rather spend $100 million on defeating this than spend an extra $40,000 or $50,000 in taxes. It doesn’t make a great deal of sense to me if you want to be a good neighbor.”
[Chris Van Buskirk and Michael P. Norton contributed to this report.]
