Massachusetts could be the next state to adopt a millionaire’s tax. Yesterday, the legislature passed the first hurdle in passing a new constitutional amendment establishing the new taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. . If adopted, the amendment would create a 4 percent surtax on income above $1 million.
The Boston Globe has more details on the proposed tax change:
The state Department of Revenue estimates that the amendment would generate between $1.6 billion and $2.2 billion in additional state tax revenues in 2019. The agency estimates that 19,500 returns will be affected. That’s about one-half of 1 percent of all returns filed with the Department of Revenue.
The amendment would direct the new infusion of revenue to only transportation and education, though there is a debate over the constitutionality of that provision.
The $1 million threshold would be adjusted to inflation to prevent bracket creep.
The proposal is being presented as a tax on the state’s wealthy residents, but it could also hit a number of pass-through businesses. Internal Revenue Service data for 2013 lists approximately 9,000 filers in Massachusetts with adjusted gross incomeFor individuals, gross income is the total pre-tax earnings from wages, tips, investments, interest, and other forms of income and is also referred to as “gross pay.” For businesses, gross income is total revenue minus cost of goods sold and is also known as “gross profit” or “gross margin.” above $1,000,000 that included income from partnerships or S corporations and approximately 3,000 filers with net business income.
These filers represent the bulk of pass-through business returns too. Sixty-two percent of all partnership and S corporationAn S corporation is a business entity which elects to pass business income and losses through to its shareholders. The shareholders are then responsible for paying individual income taxes on this income. Unlike subchapter C corporations, an S corporation (S corp) is not subject to the corporate income tax (CIT). net income in Massachusetts comes from returns with more than $1,000,000 in adjusted gross income.
Currently, the individual income tax rate in Massachusetts is 5.1 percent. It has been decreasing over the last several years due to a set of tax triggers passed in 2002. If specific requirements are met, the rate falls by 0.05 percent a year. It cannot fall below 5 percent.
The draft amendment passed overwhelmingly with 135 of the 200 legislators supporting the measure. Only 50 were needed for passage.
This is just the first step in the process of amending the constitution. Legislators need to reapprove the amendment at some point in the 2017-2018 legislative session, and then, it would be placed on the November 2018 statewide ballot for voter approval.
Several other states, such as New York and California, have similarly-styled millionaire’s taxes.
Massachusetts has made significant progress shedding its old moniker of “Taxachusetts.” If adopted in 2018, this proposal would move Massachusetts in the wrong direction.
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