A proposal to modify the Massachusetts Constitution impose a 4% surtax on income over $1 million would like raise approximately $1.3 billion in 2023, the Center for State Policy Analysis at Tisch College of Tufts said in a non-partisan report released on January 13. The citizens of Massachusetts will vote on the amendment on Nov. 8.
The report examined whether millionaires could leave Massachusetts to avoid the surtaxoften called the “Millionaires tax“. He analyzed research on cross-border movements from other states that have implemented similar taxes.
Evan Horowitz, CPSA Executive Director and author of the report, explained that the millionaire tax would have little bearing on whether residents leave the state.
“We analyzed the numbers and found that with a tax increase of this size, you would find families moving to Massachusetts – something like 500 – but not that many,“said Horowitz. “I don’t think that’s enough to significantly undermine the amount of revenue that would be generated by the tax.”
Horowitz pointed out that millionaires have enjoyed autonomy over where they work since before the pandemic.
“The other thing to keep in mind…is that the people who make a million dollars in any given year are the head of an organization, for the most part,” Horowitz said. “So they’ve already had tremendous control over where they live their lives.”
Horowitz also explained that community ties to Massachusetts will deter many millionaires from leaving.
“Yes [a millionaire] lives in Massachusetts, it’s because they chose to live in Massachusetts,” Horowitz said. “It’s because they have kids going to school in Massachusetts. They’ve had partners and companies they work with here.”
Brigitte Walla student researcher who worked on the report, explained that cross-border travel will likely be rare as only a small number of millionaires will be affected by the tax each year.
“What was really interesting is that the majority of millionaires aren’t their whole life or careers; most of them have been millionaires for only a year,” Wall, a senior, noted.
However, cSPA predicts that cross-border moves would reduce millionaires’ tax earnings by about five percent. The center factored this decrease into his estimate that the surtax would increase by $1.3 billion.
The report suggests that tax evasion is more likely than cross-border movements to jeopardize the amount of revenue the tax would generate. He also believes that tax avoidance will decrease the millionaire’s tax revenue by approximately 35%Which one is taken into account in his prediction of the overall tax revenue.
Thomas Downes, associate professor of economics at Tufts and the report’s lead researcher, said he believed the report overestimated the amount of tax avoidance the tax would produce.
“They potentially overestimate the amount of avoidance,” said Downes. “Evidence is scarcer there in terms of economic research.”
Horowitz, Downes and Wall all expressed bewilderment that the media tends to focus on cross-border movements as an impediment to the accumulation of tax revenue, while tax avoidance is probably a bigger problem.
Wall speculated about the cause of this feature of media coverage.
“I just think people leaving the state are a lot more concrete, and… it’s a lot easier to capture visually and conceptually,” Wall said. “It’s a more tangible loss than tax avoidance.”
The report predicts that the millionaires tax is unlikely to discourage economic productivity. This is contrary to a to study by the Beacon Hill Institute which came to the opposite conclusion.
A more recent publication of pioneer institutea Boston-based think tankcritical cSPA results. Downes abstract Pioneer criticism of the report and expressed its disagreement.
“The main point they’re trying to make is that in the report that Evan [Horowitz] wrote, he only looked at one year and did not take into account the fact that there will be changes from year to year, that he did not have a long enough vision. …I think [Horowitz] was actually very explicit that there will be a continual shuffling of taxpayers subject to the millionaire tax,” Downes noted.
Horowitz revealed that over the next few months, SPAc will publish one to two additional gears on the possibility that the millionaires’ tax will reduce economic and racial inequalities and the potential benefits of investing increased tax revenue in education, among other problems.
While SPAc is neutral on whether Massachusetts should adopt the tax, Wall expressed his personal support for the amendment.
“I just think it’s a little shocking in a state as progressive as Massachusetts that we [aren’t] already taxing millionaires at a higher rate“, Wall noted.
Wall hopes Tufts students will engage civically on this issue.
“I think if there’s rhetoric on the Tufts campus about this, it’ll spread more, and people will tell their parents, who could be millionaires in Massachusetts,” Wall noted.