FAQ Fair Share Amendment Edition

Looking for more detailed information on the Fair Share Amendment being discussed here in the Commonwealth? Check out our guide to some common questions about it and learn more!

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The Fair Share Amendment will be on the ballot in Massachusetts on November 8, 2022. It would amend the state constitution to allow for an additional 4% income tax on the portion of a tax filer’s taxable income that is above $1 million. The money raised by this tax must be used to support public education and transportation. The Fair Share Amendment is also known as a “millionaire tax.”

Massachusetts created one of the first state-level income taxes in 1915 with an amendment to its state constitution. The state constitution currently says that there can be only a single tax rate applied to personal income. Compared to other states, this is an unusual restriction. Most other states – and the federal government – tax different levels of income at different rates. Adding an additional tax rate for high income earners requires an amendment to this part of the constitution. The state constitution has been amended many times. For example, in 1974 it was amended to specify that state gas taxes would be used to support certain kinds of transportation.

The Fair Share Amendment would bring in approximately $2 billion in additional tax revenue each year. 

 

The Massachusetts Department of Revenue estimated in 2015 that the Fair Share Amendment would bring in about $2 billion in the first year. As the Massachusetts economy grows over time and incomes continue to be more concentrated among the wealthy, the revenue total would likely grow over time as well. For example, the Washington D.C.-based Institute on Taxation and Economic Policy produced an updated estimate in 2021 of about $2.7 billion.

 

A study from the Center for State Policy Analysis at Tufts University working from the 2015 Department of Revenue numbers estimated that, considering accounting tricks and other in-state tax avoidance maneuvers, the net increase in revenue would be about $1.3 billion in the first year.

 

None of these estimates include the positive economic impact of the increased state investments the law would require. Investing billions of dollars more each year in public education and transportation would stimulate the economy, enhance productivity, and boost future growth.

The Fair Share Amendment will require that tax revenue raised by the additional 4% tax on taxable income over $1 million be spent on public education and transportation. This restriction is included in the language that will be added to the state constitution.

Only a tiny percentage of Massachusetts households earn over $1 million in taxable income over the course of a single year: well under one percent of all households or fewer than 7 of every thousand.

Very unlikely. The Fair Share Amendment is a tax on taxable income not wealth. The value of your property is wealth, not income. When you sell your home, the taxable income from the sale is only the capital gain – that is, the amount by which the sale price exceeds the total payments made to buy the house, the cost of improvements, and other costs like realtor fees. Additionally, home sellers can deduct up to $500,000 of the proceeds from the sale of their primary residence from their taxable income. In 2021, less than 1% of all home sales (just 895 sales out of over 100,000) generated capital gains over $1 million after the joint filer deduction. The average sale price of those properties was $3.8 million. Even then, only that portion of their total taxable income that exceeded the $1 million threshold would be subject to the additional 4 percent tax.

The short answer is, no, they will not move away. Only a very small number of millionaires move to avoid paying more taxes. Why is this so? High income people tend to be older, married, with children, and embedded in their communities and the local business networks that have created their wealth. An additional 4% tax on just a portion of their income represents a relatively small increase in their overall state, local and federal tax costs. Overwhelmingly, millionaires choose not to uproot their families in order to avoid a small tax increase that has little or no effect on their spending and quality of life. In fact, many of the states (for example, California and New York) with the highest tax rates on million-plus dollar incomes are the ones that have both the most million-dollar income households and have seen the largest increases in the number of people with million-dollar incomes.

Fulfilling the state-level commitments to make high-quality early education accessible and affordable, invest in K-12 schools, and support the state’s higher education campuses and students will all require ongoing revenue over the long term. A March 2022 legislative commission suggested first steps towards what might be a multi-year path forward for early childhood education. The state is in the midst of its 7-year commitment to significantly expand funding for K-12 education, especially in low-income school districts. Investment in state colleges and universities has faltered over the past decades, causing tuition and fees to rise and make higher education either unattainable, or leaving students with high levels of debt. Ongoing and increased investment in public education for young children through adulthood will help ensure that all students have the best chance at the high-quality education they deserve to achieve the future they hope for.

Investing more in transportation would help Massachusetts' economy by making it easier for people and goods to travel where they need to go. It would connect under-resourced communities with economic opportunity. A long history of underinvestment has left bridges, roads, buses, and train routes in unacceptable states of disrepair. For instance, there are over 600 structurally deficient bridges across the state. Traffic congestion in Massachusetts is often ranked worst in the nation. A long list of new improvement projects remains stuck on the drawing board due to lack of funds. Transportation has become the biggest and fastest-growing source of global warming emissions in Massachusetts, a problem that can be helped by providing drivers with better, cleaner transportation options like electric buses and charging stations.

No. Unlike in Massachusetts, most states apply higher tax rates to income at higher levels. Some states have ten or more income “brackets,” with correspondingly higher tax rates. Also unlike Massachusetts, many other states have both state-level income taxes and additional city or county income taxes. The Fair Share Amendment would create one additional tax rate in Massachusetts, applied only to the highest incomes–starting with the first dollar of a taxpayer’s second million of taxable income. Read more HERE.

No. Higher-income people in Massachusetts pay a lower portion of their income in state and local taxes than do lower- and middle income taxpayers. That’s why our current tax system is said to be “upside down.” Households with the highest 1 percent of incomes pay an average of about 7 percent of their income in state and local taxes. Those in the middle pay about 9 percent. And while the lowest income tax filers pay fewer total dollars in taxes, this amount is an even greater share of their very limited incomes – about 10 percent. The Fair Share Amendment would take a significant step toward turning our upside down tax system right side up.  Read more HERE.

No. Massachusetts’ taxes are average when compared to other states. For an “apples-to-apples” comparison, we look at the combined state and local tax revenue of all 50 states as a portion of each state’s economy. This comparison shows that Massachusetts’ combined state and local taxes are right in the middle, and slightly lower than the U.S. average. Read more HERE and HERE.

The Fair Share Amendment would advance racial equity in two powerful ways. On the spending side, new funding for education and transportation could improve schools and provide better access to jobs in communities of color that have been under-resourced.. On the tax side, the Fair Share Amendment would also reduce inequality because the relatively small number of very high-income households that would pay the tax are also disproportionately white. Read more HERE.

No. The Fair Share Amendment is a tax only on personal income over $1 million. It is not a tax on businesses. Individuals, of course, can have income from many sources, such as wages, stock sales, corporate dividends, or from trusts or pass-through business profits. Regardless of the mix, the 4 percent Fair Share tax will apply only to taxable personal income above the $1 million threshold.

No. Only income over $1 million is subject to the additional Fair Share tax. Business owners that receive over $1 million in annual profits after expenses and various tax breaks are not really what most of us think of as “small businesses.” For tax purposes, many owners choose to organize their business as a “pass-through entity.” This means that the business does not pay corporate taxes on its profits; instead, the profits are “passed through” to the owner and taxed as personal income. Less than 3 percent of owners of pass-through entities in Massachusetts have taxable personal income over $1 million that would be subject to the Fair Share tax. Read more HERE.

Likely not. When an asset is sold, tax is due only on the “capital gain.” The capital gain is not the sale price of the asset, but instead is the growth in the asset’s value over time. Someone who makes a large financial gain from selling their ownership in a large or small business could pay some Fair Share tax, but only on the portion of their total taxable personal income over $1 million. Someone selling a business worth several million dollars might choose to reduce the income subject to tax by splitting the sale into two parts–one part before and one part after the start of a calendar year.

No. The Fair Share Amendment takes care of this issue by raising the threshold each year to keep up with inflation. For example, if inflation runs at 3% each year, the threshold will be more than $1.2 million by the end of the decade. With this inflation adjustment built into the amendment, only the very highest income households will ever pay the Fair Share tax.

Tax filers with annual incomes over $5 million would pay fully 70 percent of all the Fair Share tax each year, based on a Massachusetts Department of Revenue analysis of income projections for 2019. Ninety percent of the Fair Share revenue would be paid by people with annual incomes over $2 million. With inflation and the growing concentration of income in Massachusetts, these percentages would likely be even higher in 2023.

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