Issue of Diversifying Revenue Streams Stands in Shadow of Millionaire Surtax

Is it wise and fair to try to raise $2 billion per year in new revenue for improvements to public education and transportation by instituting a surtax of 4% on the incomes of every millionaire in Massachusetts?

Seventy percent of the Massachusetts legislators who voted on this question last week believe it is.

I’m not a millionaire.

I will never be a millionaire. 

But, if I were a millionaire, I like to think I’d be willing to pay more taxes in some manner, not because I believe our government is doing everything right and using all of its resources efficiently, because it is not, but rather because we have been underfunding public education for at least the past 10 years and because the documented, unaddressed needs in transportation run well beyond $10 billion, and because I do not think we who have received, grace-like, the benefits of living in the most free, most prosperous, most opportunity-rich country in the world can afford to ignore those needs, giving as an excuse that government has to get its house in a (undefined and unattainable) perfect state of order before we’ll even entertain the notion of higher taxes.

It’s no fun paying taxes, I get it, and the justification for any of us paying more taxes is not nearly airtight, but this may be a time in history when we who are doing well have to sacrifice more dollars on the altar of government in the interest of preserving the system that has made our good lives possible and of ensuring the success and survival of that system.  Think of it as “taking one for the team,” with the team being your progeny and your neighbor’s progeny three and four generations hence.  Think also of the team as encompassing the golden-goose-laying Massachusetts economy, from which flows everything we like most about living in Massachusetts.

A sacrifice is a gift and it can take infinite forms, none higher than that of the men and women who have died in battle to keep us free.  (The farm boys from New England who served in the union army weren’t doing it for the pension -- and it was not fair that so many of them never made it home.)

The United States was built by givers, not takers; if the U.S. is to be preserved, it will be due to the sacrifices made, starting now, by its citizens out of love for country and concern for their children and grandchildren.

Having said all that, I have to confess I’m not sold on the millionaire surtax.  It seems too facile, one of those things that’s almost too good to be true.

We have roughly 20,000 millionaires in Massachusetts from whom we propose to extract approximately $2 billion more per year in income taxes through the mechanism of a voter-approved initiative, or referendum.  These millionaires are a small percentage of the overall population.  Yes, they are gigantic winners in the great lottery of life, persons who evoke more jealousy than sympathy. 

They have money.  We can take it.  Let’s.

There are two major problems with this scenario. 

Number one, those millionaires do not have to stay in Massachusetts.  What are the chances a significant percentage will move rather than submit to a 4% income surtax?  Most of them probably already have homes out of state; it will be just a question of selling their places in Massachusetts and changing legal residences. 

Number two, the millionaire surtax is the kind of thing that will get the attention of high achievers everywhere, thereby hurting the state’s reputation in the global economy and ultimately discouraging investment and entrepreneurship in Massachusetts. 

Senate Minority Leader Bruce Tarr, R-Gloucester, called the millionaire surtax “a penalty on success.” That penalty might not kill the buzz in Boston’s new Innovation District (a.k.a. the Seaport; a.k.a., the South Boston Waterfront), but it is bound to dampen the enthusiasm of some geniuses thinking of starting a company, or moving a company, here… and we’ll never know what we lost.

We should heed the words of John Regan, executive vice president of governmental affairs for the Associated Industries of Massachusetts (AIM), a centrist business organization.  In a Jan. 19, 2016, blog post, “Why the ‘Millionaire Tax’ Will Hurt Jobs,” Regan wrote, “Last week, the commonwealth was successful in landing the eighth largest corporation in the world (General Electric) to Boston.  The company is leaving its current home state (Connecticut) in part because of concerns about unfair taxation.  We should look long and hard at this (surtax) question that raises so much from so few and ask, does this imbalance make the commonwealth a better, or a worse place?”

When he testified on the millionaire surtax during a legislative hearing in 2015, Regan said, “Commonwealth means that there is a social contract with all the people and the citizens.  We are all in this together and that is reflected in our tax policy.  This amendment (the initiative calling for surtax) flies in the face of that.  There is a point of confusion relative to equity.  Those who make over a million dollars pay $51,000 (in income tax) while someone making $50,000 has a $2,500 obligation.  This (surtax) increase is anything but equitable.”

In response to a question from Senator Daniel Wolf, D-Harwich, Regan said that AIM has “historically supported other tax proposals.”  He emphasized, “We are not anti-tax.  Our concerns center on equity and the business climate.”

We should also heed Eileen McAnneny, president of the Massachusetts Taxpayers Foundation (MTF), an independent, 80-year-old public policy group with a hard-earned, blemish-free reputation for accuracy and honesty.

Testifying at the same 2015 hearing as Regan, McAnneny said, in part: “This (surtax) is placing a tax on less than one half of one percent of Massachusetts residents and will raise $2 billion dollars.  There are some inherent problems with this.  We are already over-reliant on the state income tax.  We need a strategy to diversify our revenue streams.  We are ranked fourth in the nation on our reliance on the income tax: 58% of our revenue…This (surtax) would increase the volatility of the revenue stream.  This is a tax for fewer than 20,000 people.  There will be an outward migration.  This will also have an impact on the revenue collected from capital gains.  This has potential negative consequences.  We need to adjust the revenue projections (of $2 billion) when considering these merits.”

McAnneny’s got it right. We need a strategy to diversify revenue streams.  The millionaire surtax is more like a scheme than a strategy.