Massachusetts May Set Its Income Tax Rate in the Constitution. How Unusual Is That?

February 2, 2016

Joseph Bishop-Henchman

Joseph Bishop-Henchman

Massachusetts legislators are now considering a ballot initiative proposal that would raise the current 5.1 percent state income tax to 9.1 percent for income over $1 million. The House Revenue Committee approved the proposal late last week and it now moves the full House.

The state constitution currently requires that income tax be a uniform rate, prohibiting progressive or graduated tax rates. (I’ve long heard the story, which probably isn’t true, that John Adams wrote the provision, since the income tax wasn’t enacted in Massachusetts until 1916.) Strangely, the proposed ballot initiative doesn’t repeal this language but simply adds another paragraph:

To provide the resources for quality public education and affordable public colleges and universities, and for the repair and maintenance of roads, bridges and public transportation,all revenues received in accordance with this paragraph shall be expended, subject to appropriation, only for these purposes. In addition to the taxes on income otherwise authorized under this Article, there shall be an additional tax of 4 percent on that portion of annual taxable income in excess of $1,000,000 (one million dollars) reported on any return related to those taxes. To ensure that this additional tax continues to apply only to the commonwealth’s highest income residents, this $1,000,000 (one million dollar) income level shall be adjusted annually to reflect any increases in the cost of living by the same method used for federal income tax brackets. This paragraph shall apply to all tax years beginning on or after January 1, 2019.

So then you’ll have the state constitution seemingly disagreeing with itself: one paragraph prohibiting a graduated income tax and the next paragraph requiring it. In legal interpretation between equal provisions, the specific outweighs the general and the later outweighs the earlier, so it would work but still is strange.

More unusual is putting the tax rate directly into the state constitution. I skimmed through state constitutions and found only two other instances of it: California has enshrined its temporary income tax surtax rates in the state constitution (the section self-expires on January 1, 2017), and Alabama has constitutionally set its corporate income tax rate at 6.5 percent. While some states have constitutional caps or limitations on taxes (see table), only Alabama and California set the rates constitutionally.

TABLE: Only Alabama and California Set Tax Rates in the Constitution

State Constitutional Provision Summary
Alabama Ala. Const. art. XI § 211.03 Sets corporate income tax rate at 6.5 percent
California Ca. Const. art. 13 § 36 Establishing temporary income tax surtaxes; provision self-expires on January 1, 2017
Georgia Ga. Const. art. 7 § 3 para IV Prohibits increase in state income tax rate above 6 percent
Illinois Il. Const. art. 9 § 3 Tax on corporations cannot exceed tax on individuals by more than a ratio of 8 to 5; tax must be non-graduated
Massachusetts Mass. Const. Amend. Art. 44 Requires uniform income tax rate
Michigan Mich. Const. art. 9 § 7 Prohibits graduated income tax
North Carolina N.C. Const. art. V § 2 Income tax rate cannot exceed 10 percent

A major reason why tax rates are in statutes rather than in constitutions is that constitutions are less flexible to alter in changing situations. If Massachusetts became flush with revenue or if the tax increase turned out to be an awful mistake, it would take another constitutional amendment to change it.

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A 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.

A surtax is an additional tax levied on top of an already existing business or individual tax and can have a flat or progressive rate structure. Surtaxes are typically enacted to fund a specific program or initiative, whereas revenue from broader-based taxes, like the individual income tax, typically cover a multitude of programs and services.

A tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat.

A corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax.