The Honorable Maura A. Looney
John Adams Courthouse,
One Pemberton Square, Room 1200
Boston, MA 02108
Re: Amicus Letter of The Massachusetts Budget and Policy Center (MassBudget)
Finfer, et al vs. Campbell, et al, SJC-13885
Dear Clerk Looney,
The Massachusetts Budget and Policy Center (MassBudget) submits the below amici letter in the above-entitled case.
- Statement of Interest
The Massachusetts Budget and Policy Center (MassBudget) is a non-profit, non-partisan organization focused on fact a, analyzing, and promoting progressive policy solutions to Massachusetts’s most pressing tax and budget issues. MassBudget is among the very few organizations in the Commonwealth that brings deep expertise to the analysis of our state tax and budget issues, and we are the leading progressive experts on such issues. MassBudget has been engaged in this work for almost 40 years.
In this capacity, MassBudget works to educate legislators, the media, and the public about opportunities to advance economic and racial equity and broadly shared prosperity throughout the Commonwealth. MassBudget also analyzes and explains regressive policies that threaten the wellbeing of lower- and middle-income Massachusetts families. These threats present themselves in many forms, including as tax cuts that would starve the Commonwealth of much-needed revenue while disproportionately benefiting our state’s highest-income households.
I. Summary of Argument
It is clear to us that, were it to pass, the ballot initiative to cut the state’s personal income tax rate from 5 percent to 4 percent would have enormous negative impacts on equity and on the overall wellbeing of most Massachusetts households. As such, MassBudget already is gearing up to play a central role in the public debate about this initiative, should it remain on the November ballot. We are very concerned that the Attorney General’s inaccurate and therefore misleading summary of the ballot initiative will interfere directly and significantly with our ability to educate people about the true impacts of the initiative. That our analysis will be directly contradicted by the official summary will undermine our credibility both on those specifics and on the entire ballot question more generally. The Attorney General’s summary will confuse and impair, rather than support, a well-informed and fact-based deliberation of the initiative.
II. The Attorney General’s inaccurate and misleading summary regarding the initiative’s reduction in the tax rate for long-term capital gains will distort, rather than support, informed deliberation and does not meet the Constitution’s requirement of a fair summary.
A. The Attorney General’s summary provides a vital basis for informed public debate and consideration of the merits of ballot initiatives, especially for initiatives dealing with often complex and technical tax issues.
In establishing citizens’ right to use the initiative petition process to enact state laws, the Constitution assigns a central role to the summary that the Attorney General produces for each initiative. This summary is the only explanation of the initiative to appear on the signature petitions, and is the primary explanation of the measure to appear in the Secretary of the Commonwealth’s Information for Voters guide and on the November ballot itself. As the primary source of voter understanding of the initiative measure’s substance, it is critical that the summary be clear and accurate, “so that the voter may get a fair comprehension of what the law will be if the measure is adopted.” Sears v. Treasurer & Receiver General, 327 Mass. 310, 326 (1951). Without this “fair comprehension,” public discussion of the measure and voters’ ultimate decision on Election Day will be ungrounded and potentially misguided. If the summary is not “substantially adequate and accurate, a great safeguard of direct legislation is lost.” Evans v. Secretary of the Commonwealth, 306 Mass. 296, 299 (1940); see Barnes v. Secretary of the Commonwealth, 348 Mass. 671, 674 (1965) (importance of summary to “insure . . . that the voters understand the law upon which they are voting” is unchanged by amendment replacing Attorney General’s “description” with “fair, concise summary”).
The need for a clear and accurate summary is particularly urgent in the case of ballot initiatives that deal with highly complex and technical areas of the law, such as taxation, where the significant changes effected by amendments to inter-related provisions of the statutes may be obscure to non-experts. It is no accident that the Constitution assigns the role of drafting the summary to the Attorney General “to the end that one learned in the law and under high official responsibility should draft” it. Opinion of the Justices, 271 Mass. 582, 588 (1930). What is required to support constructive debate and reasoned voter decision-making in such cases is a summary that goes beyond “merely reading the face of the petition while ignoring its factual impact,” Carney v. Attorney General, 451 Mass. 803, 809-10 (2008), a task that draws upon the legal sophistication that the Attorney General can bring to the role. It is in precisely such contexts that the Constitution’s requirement of a clear and accurate summary is most needed to guard against the concern expressed by the drafters of Article 48 “that the initiative process might be abused by presenting voters with confusingly and misleadingly formulated petitions,” El Koussa v. Attorney General, 489 Mass. 823, 838 (2022), and to ensure voters’ awareness of significant fiscal changes wrought by the initiative. See Sears, 327 Mass. at 325 (invalidating measure whose summary failed to describe “material provisions having a tendency to increase the burden . . . upon the public”)
B. The Attorney General’s summary inaccurately and misleadingly excludes long-term capital gains, one of the three classes of income covered by the state’s income tax, from the categories subject to the initiative’s rate reductions.
To anyone familiar with the mechanics of the state’s income tax laws, and to anyone who reads the sentence immediately following the language the initiative would amend in General Laws, c. 62, sect. 4, it is obvious that adoption of the initiative will make the same reductions in the tax rates applicable to long-term capital gains (gains on sales of assets held for more than one year) as it makes in the rates applicable to dividends, interest, wages and salaries, and the other elements of Part B income. Neither Appellees nor Intervenors question this reality. But the Attorney General’s summary denies this important feature of the initiative. The summary reads as follows:
This proposed law would, over a period of three years, lower the tax rates on (1) personal taxable income consisting of interest and dividends, and (2) personal income other than interest, dividends or capital gain income, such as wages and salaries. Both tax rates were 5.00% for tax year 2024. The proposed law would set both tax rates at 4.67% for tax year 2027, 4.33% for tax year 2028, and 4.00% beginning in tax year 2029.
The proposed law states that, if any of its parts were declared invalid, the other parts would stay in effect.
While the summary’s wording relating to dividend and interest income may be somewhat confusing to a non-technical reader, the summary clearly tells the reader that the initiative does not change the tax rates on capital gain income. While this is accurate for the categories of short-term capital gain income that are included in Part A income, it is flatly wrong about the much larger category of long-term capital gains (Part C income). Short-term capital gains, which reflect sales of assets that have been held by their owner for a year or less, are taxed at a higher rate but provide less state revenue because the preponderance of gains are long-term. By misinforming the reader about a significant element of the initiative, the Attorney General’s summary will pose a serious obstacle to MassBudget’s efforts to inform voters of major negative consequences of the measure and will lead voters to cast their ballots based on a substantial misunderstanding of the measure before them.
C. The initiative’s reduction in the tax on long-term capital gains is an important element in each of the primary arguments that MassBudget expects to raise, if the initiative goes to the ballot.
The Attorney General’s inaccurate summary interferes directly and significantly with each of the two main arguments that MassBudget will present to voters, should the initiative appear on the ballot. First, if approved, the initiative would produce a drastic decline in state revenue collections, with the rate cut for long-term capital gains creating a meaningful part of the loss. Analysis by leading national tax experts at the Institute on Taxation and Economic Policy (ITEP) concludes that the total loss will exceed $5 billion a year, and that the long-term capital gains cut would account for approximately $350 million of that $5 billion total. By contrast, ITEP estimates that the initiative’s proposed rate cut applied to dividend and interest income – a type of income accurately (if perhaps confusingly) referenced in the Attorney General’s summary – would generate an annual revenue loss only half as large, approximately $175 million a year.
Understanding that Massachusetts residents often feel strongly about budget cuts when well-informed, it is fundamental to MassBudget’s mission to provide the public with accurate information about the potential impacts of tax cuts and the resulting budget cuts. Should the initiative remain on the ballot, a key part of MassBudget’s work over the coming months will be outreach to and the education of people in Massachusetts about the severity of budget cuts that would be engendered by a one percentage point cut in the personal income tax rate. This outreach and education will focus both on the impacts of the overall revenue loss (some $5 billion annually) and, more specifically, on the revenue that would be lost due to cutting the tax rate applied to “unearned income”, including long-term capital gains, and dividend and interest income. Such outreach and education would include how budget cuts will affect voters themselves and their families, as governmental services and programs will be reduced or eliminated.
Some context is helpful in understanding the scale and likely budgetary impacts of the proposed cut to state revenue collections, which in turn helps explain why this initiative is of such concern to MassBudget. The state budget for the coming, 2027 fiscal year, as proposed by the Governor in January, would total $62.6 billion. Over 40 percent ($25.6 billion) of the revenue required to support this budget total will come from the state personal income tax alone. Stripping some $5 billion, or approximately 20 percent, from this revenue stream would precipitate a crisis in state budgeting. Importantly, some areas of the state budget – including major spending categories, like healthcare – are less reliant on funding from state tax revenues, instead drawing some or much of their funding from the federal government or departmental revenues, such as fees, fines or tuition. The reverse side of this coin is that other areas are far more reliant on state tax-supported funding such as environmental protection, public health, a wide range of assistance to cities and towns, and more. Some budget areas, though funded by state tax dollars, are regarded as virtually untouchable, such as the billions of dollars in debt service payments made annually to bond holders. The result is that cuts in some budget areas would be more drastic than what an across-the-board approach might otherwise suggest. Finally, it is important to note here that unlike other major, time-limited shocks to state finances – for example, deep recessions over which Massachusetts has no control – the self-inflicted shock that would be created by the proposed income tax rate cut would be ongoing. Though the state’s reserve accounts could provide some cushion during the first several years, the resulting budget cuts in many programmatic areas would be draconian over the long run. Thus the ability to educate the public as to potential results from this ballot is important and necessitates an accurate ballot question summary.
Clearly, the overall loss of $5 billion in annual state revenue is hugely problematic, but so is the specific loss of long-term capital gains revenue. The $350 million annual loss anticipated from the reduced rate on long-term capital gains adds to the total cost of the ballot measure, but itself alone represents a large and material loss in state revenue. If this potential loss of $350 million of annual revenue appears anything less than alarming, it does so only because the loss of $5 billion annually due to the ballot initiative as a whole is simply staggering. It is useful here then, perhaps, to provide some meaningful, budgetary context as a way to better understand the true magnitude of the revenue loss associated with just the rate cut for long-term capital gains.
To give context to the amount by which capital gains income would be diminished, in her FY 2027 budget proposal, the Governor recommends appropriating a similar total for indigent legal defense, shared between Private Counsel Compensation ($109 million) and the Committee for Public Counsel Services ($246 million) line items. Alternatively, on the other side of the legal table, the Governor recommends $282 million for prosecutors and related line items. The Department of State Police would receive $415 million under the Governor’s proposal, while the half dozen line-items related to juvenile justice together would receive $183 million. While the Attorney General’s summary is careful to explain that the proposed rate cut will apply to dividends and interest, it falsely asserts that long-term capital gains would be excluded from the rate cuts, although the impact of the rate reduction on long-term capital gains is estimated to far exceed the impact of the reduction for dividends and interest. The unfortunate reality is that the Commonwealth would lose hundreds of millions of dollars annually from the rate cut to long-term capital gains, necessitating substantial cuts in state spending.
MassBudget’s second primary argument focuses on the fact that the differences in impact of the initiative on different income groups would be extreme. MassBudget has spent decades researching and disseminating information about Massachusetts’ “upside down” state and local tax system. Like almost all states, Massachusetts’ state and local tax system collects a larger share of household income from those with lower and middle incomes than it does from high-income households. This disparity lessened significantly with the 2022 adoption of the surtax on income above $1 million, but the system remains upside down. Educating the public, press, and legislators about the basic unfairness of this structure, the elements that produce this unfair result, and how to flip the system right-side up is core to MassBudget’s organizational mission.
Applying this analytic lens to the ballot initiative, we see that the top 5 percent of Massachusetts households by income would receive 40 percent of all tax savings from the rate reductions, and the top 20 percent would receive two-thirds of the total. Meanwhile, the bottom 60 percent would receive just 15 percent of the total, and the bottom 40 percent would receive a mere 5 percent. As inequitable as this overall distribution of tax cut savings would be, the skewed distribution of long-term capital gains tax cut savings would be far more extreme. The ITEP analysis reveals that the top 1 percent of Massachusetts households alone would receive over three-quarters of the total tax cuts on long term capital gains, or an average of $8,345 per year per household. (Still more alarming, a Congressional Research Service study that draws on analysis performed by the Urban-Brookings Institution reports that nationally, the top one-tenth of one percent (0.1 percent) of households collects 55.5 percent of all long-term capital gains. Presumably, this national average percentage does not differ radically for Massachusetts.) Meanwhile, Massachusetts households in the bottom 80 percent by income would receive, collectively, just four percent of the total savings from the proposed rate cut on long-term capital gains. On average, these bottom 80 percent of households would receive an annual tax cut of $6 a year.
Both the costs and the profound inequity in tax reductions of the initiative – as especially demonstrated by the long-term capital gains component – are central to the arguments MassBudget will make should the initiative move forward. More importantly, these issues are central to the decision voters will make at the ballot box. In 2022, Massachusetts voters approved a constitutional amendment enacting a highly progressive surtax on incomes in excess of a million dollars. The two primary arguments advanced by the proponents of that successful measure were, first, the need for adequate state revenues to fund important programs and services and, second, the need to make the state’s tax system more equitable by ensuring that the state’s wealthiest residents paid a larger share of taxes. These are the very same themes that MassBudget intends to highlight in its arguments against the tax cut initiative, themes that appear to have been important to the voters four years ago. The Attorney General’s inaccurate summary will inhibit – and for many voters, likely prevent – the ability to understand the full impact of the initiative on two issues already demonstrated to be of great concern to voters.
D. The Attorney General’s summary’s inaccurate statement that the tax cut doesn’t apply to capital gains will make it difficult, if not impossible to convince voters of the factual basis for MassBudget’s primary arguments.
The prospect of making the crucial arguments against this ballot initiative in the face of the Attorney General’s inaccurate summary is a daunting one. It places the opponents of the question at an unfair disadvantage. And it makes it likely that voters will discredit or remain skeptical about salient facts about the initiative before them that are in conflict with the assertions in the summary. For many voters, the Attorney General’s summary, which is featured in the Voter Guide sent to every voter by the Secretary of the Commonwealth, will be the most trusted source of information about the content of the ballot question, in the face of the competing claims and assertions from advocates for and against the question. In the cacophony of debate, the Attorney General will be seen as a neutral, objective legal expert, whose summary can be presumed to accurately present “the sum and substance” of the measure. Sears, 327 Mass. at 324.
But the most important arguments that opponents of the measure, including MassBudget, will want to make each draws heavily on the fact that the initiative will cut the tax rate on long-term capital gains, both because this element accounts for a substantial portion of the revenue losses resulting from the initiative and because it accounts for a dramatic degree of the initiative’s preferential treatment of the Commonwealth’s wealthiest taxpayers. However, when it is pointed out to voters (or simply noted by them) that the Attorney General’s summary expressly states that capital gains are excluded from the categories of income affected by the initiative, voters will naturally and reasonably doubt the accuracy of our claims, which directly contradict the summary, and will hence question the credibility of our advocacy. Very few voters will have the patience, time, or capacity to dive into the text of the initiative and of the relevant statutory provisions to find that the Attorney General’s summary is mistaken about the measure’s application to long-term capital gains. And even those few who might get that far are likely to then conclude that it is more likely they who are confused in their inexpert legal research, rather than the Attorney General who is mistaken in her summary. As a result, not only will MassBudget’s advocacy in opposition to this ballot question be severely undermined, but our organization’s hard-won reputation for accurate, reliable, meticulously fact-checked analysis will risk being seriously tarnished.
Even voters who do not familiarize themselves with the Attorney General’s summary may well be influenced by its mistaken explanation and deterred from giving credence to MassBudget’s arguments. In the course of an intense campaign, it is not unrealistic to anticipate that the well-financed supporters of the tax cut initiative may run advertisements that use the Attorney General’s summary to discredit their opponents’ arguments. Such an ad might run along these lines: “The opponents of the tax cut are trying to scare you with distortions. They focus on their claim that the tax cut would apply to capital gains. But the Attorney General’s neutral summary clearly states that the tax cut doesn’t apply to capital gains. Who are you going to trust – the Attorney General or the extreme groups opposing putting money back in your own pockets?” MassBudget will face a looming risk that its arguments will be dismissed and its credibility damaged by the Attorney General’s erroneous summary, while voters ground their judgments about the initiative on a misunderstanding of its actual operation.
Conclusion and request for relief
The prominent role of the Attorney General’s inaccurate summary will handicap MassBudget’s ability to inform voters of the actual negative consequences of the initiative, will undermine MassBudget’s public reputation and credibility, and will preclude voters’ careful and fact-based deliberations about the initiative’s merits. Instead of providing a solid foundation for informed deliberation, the summary will distort debate in a biased manner. Therefore, the summary fails to meet the Constitution’s requirement of a “fair” summary.
Accordingly, for the foregoing reasons, amici respectfully asks that this Court declare that the initiative cannot be presented to the voters in the November 2026 election.
Respectfully submitted,
The Massachusetts Budget and Policy Center (MassBudget)
By and through its attorneys,
/s/ Jamie Ann Sabino
Jamie Ann Sabino (BBO # 436940)
Mark Martinez (BBO # 696843)
Massachusetts Law Reform Institute
40 Court Street, Ste. 700
Boston MA 02108
Phone: 617-357-0700
Email: jsabino@mlri.org / mmartinez@mlri.org
Declaration
In accordance with Rule 17(c) of the Rules of Appellate Procedure, the signers of this brief make the following declaration:
(A) No party nor party’s counsel authored the brief in whole or in part;
(B) No party nor party’s counsel contributed money that was intended to fund preparing or submitting the brief;
(C) No person or entity other than the amicus curiae, its members, or its counsel contributed money that was intended to fund preparing or submitting the brief; and
(D) Neither the amicus curiae nor its counsel represents or has represented one of the parties to the present appeal in another proceeding involving similar issues or was a party or represented a party in a proceeding or legal transaction that is at issue in the present appeal.
Certificate of Service
I, Jamie Ann Sabino, hereby certify that on Wednesday, the above amicus letter was served on all parties via the Court’s e-filing system.
/s/ Jamie Ann Sabino
Jamie Ann Sabino
