Many argue that it counteracts the "unfairness" of the state's flat income tax.
This past Wednesday, the Democratically-controlled Massachusetts state legislature passed the Fair Share Amendment, better known as the "millionaire tax," by a wide margin, 159-41. This means the proposal will be on the state ballot in November 2022.
The news of the passage of the 4% surtax* was cheered by many because the revenue generated will be used for education and transportation. Other supporters contend that the millionaire tax makes the state's tax structure fairer because, to some extent, it will counteract the regressivity** of the flat income tax, currently 5% in Massachusetts.
The campaign to pass the proposal has been largely driven by Raise Up Mass, a coalition of labor unions, community organizations, and religious groups. In a statement, the group states:
"As we recover from the pandemic ..., new revenue is necessary to improve our public schools and pre-K programs; rebuild crumbling roads, bridges, sidewalks, and bike paths; make high-quality public higher education affordable, and invest in fast and reliable public transportation" the group asserts. "Long before the pandemic, we needed new investments . . . and now those investments are needed more than ever to lift our economy into an equitable recovery . . ."
Besides Massachusetts, there are nine states with a flat tax: Colorado, Illinois, Indiana, Kentucky, Massachusetts, Michigan, New Hampshire***, North Carolina, Pennsylvania, and Utah.
30 states have a graduated system that imposes higher tax rates on higher levels of income. It is called a progressive tax since the rate grows higher with income and is considered fairer by many economists.
Eight states are without an income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. They may, however, have other taxes: property, sales, etc.
The Massachusetts Taxpayers Foundation, a group aimed at supporting business, argued that the state should hold off on the vote until 2022 when the post-pandemic economy is more settled and it will be clearer what federal tax law changes will be. Other opponents also argue that the 4% millionaire surtax will cost jobs by lowering investment and drive millionaires out of the state.
*A surtax is a tax levied on another tax. In this case, the 4% would be on top of the 5% state flat income tax.
**The flat tax is considered regressive because if all taxpayers pay a flat tax, then the actual amount that millionaires pay is a significantly smaller percentage of their income than other taxpayers.
***New Hampshire has a 5% tax on dividends and interest only.