A coalition opposing the push for a so-called “millionaire’s tax” launched its campaign Monday, saying the tax will hurt owners of small businesses.
Massachusetts voters will decide whether to implement a tax hike on high-income earners by constitutional amendment in November. The Coalition to Stop the Tax Hike Amendment, made up of more than 80 small businesses and trade organizations, says if voters pass the proposal, it would negatively impact the Massachusetts economy.
“As well-intended as the proponents may be with attempting to tax the wealthiest among us, this doesn't do that,” said Dan Cence, a spokesperson for the coalition. “It increases taxes on tens of thousands of small-business owners at the worst possible time in the economy.”
The proposed “Fair Share Amendment” would levy an additional 4% tax on earners in Massachusetts who make more than $1 million for income that exceeds that figure. Massachusetts is one of the few states that has a flat tax system, taxing all income levels at the same amount: 5%. Proponents say the new tax would bring in needed funds to support education and transportation projects in the commonwealth.
As the state comes out of the pandemic, it is not the time to raise taxes, Cence argues. “Massachusetts has a huge budget surplus right now, over $10 billion,” he said. “There’s no need for more tax revenue to be generated.”
The coalition argues the wealthiest households could afford to move out of state or set up tax avoidances, and the real burden of the proposal would fall on small business owners, farmers and others in the middle class.
Researchers from Tufts University's Center for State Policy Analysis in January looked back on 1999 to 2007 tax records and found that about half of the households that would have been subjected to the higher tax rate experienced one-time windfalls, like selling a business or a long-term investment.
Proponents, meanwhile, say the amendment will help the commonwealth build an equitable future. In a statement responding to the coalition’s launch, Steve Crawford, spokesperson for Raise Up Massachusetts, said opponents are distracting from the tax increase’s potential benefits.
“The super-rich got richer during the pandemic, and a small number of them will say anything to keep from paying their fair share to build a better future for Massachusetts families,” he said in a statement. “Even their press release today distorts the ability of small businesses to reinvest in their company. Business assets that are sold and the revenue reinvested in the company can be written off of the business owners’ taxes.”
Toby Burr, owner of Burr Brothers Boats in Marion, is against the tax hike because he worries it could negatively impact businesses like his, which are set up as an S corporation, also known as a “pass-through” company. Those businesses report revenue as personal income, and then push it back into their business, meaning it would be the individual who would be taxed an extra 4%.
“That means there's less money for the business,” he said. “Which means it’s less money to reinvest in the business, to buy machinery and equipment, to give bonuses to employees and all that sort of stuff that makes a business prosper and survive and change with the times.”
Burr said some businesses could leave Massachusetts or set up in a neighboring state like New Hampshire to avoid the tax while still having access to Boston markets. But a business like his, a boatyard, is physically tied to the community.
The Tufts study found the tax was “likely to advance racial and economic equity” with its revenues but would also likely have behavioral impacts for top earners.
“Some high-income residents may relocate to other states, but the number of movers is likely to be small,” the study’s authors wrote. “Tax avoidance could be widespread, cutting substantially into the amount of revenue raised by the levy.”
It also said the measure would generate about $1.3 billion in 2023 and would apply to around 0.6% of households in the state.
Another issue at stake for opponents is how the funds could be spent. “It really gives Beacon Hill a blank check with no accountability,” Cence said, because the funds will still need to be appropriated by the Legislature.
In April, The Beacon Hill Institute argued to the Supreme Judicial Court in an amicus brief that the question should taken off the ballot because the proposed text is too “ambiguous” and doesn’t properly spell out how the funds would be used for education and transportation, saying it is “misleading” to voters.
This fight for a “millionaire’s tax” is not new. Proposals have floated around Beacon Hill for years, and a similar measure was blocked by the state courts in 2018 on procedural grounds.
Opponents also say inflation is hitting businesses harder than ever and a constitutional amendment would be hard to adjust as the economy cycles, though the $1 million cutoff will be adjusted each year as the cost of living changes. Burr is worried that small businesses like his will be pinched as inflation drives up prices and cuts into their bottom line.
“A million bucks isn't what it used to be, you know?” he said.
