Be Like Arizona, not Illinois or California
Lessons from 2020 for proponents of Massachusetts' proposed 'millionaire's tax'
You may not have noticed it, but at the beginning of June, my home state of Massachusetts held a Constitutional Convention. The state House and Senate met jointly and voted 159-41 to pass S5, a bill placing an amendment to the state constitution to raise taxes on the wealthy on the 2022 ballot.
So what is S5?
A little bit of context — back in 2018, Bay State progressives tried to put a ‘millionaire’s tax’ amendment on the ballot that would raise income taxes on those making over a million dollars a year and use the revenue for education, transportation, etc. But the Supreme Judicial Court blocked the measure from going on the ballot, finding in a 5-2 ruling that it violated a provision of the state constitution that prevents “logrolling” — packaging multiple measures into a single ballot question; in this case, raising taxes and stipulating how the revenue was to be spent.
So legislators on Beacon Hill have passed a two-page constitutional amendment that would put the millionaire’s tax proposal on the ballot in 2022. The article of amendment is quoted below in full:
Article 44 of the Massachusetts Constitution is hereby amended by adding the following paragraph at the end thereof:-
To provide the resources for quality public education and affordable public colleges and universities, and for the repair and maintenance of roads, bridges and public transportation, all revenues received in accordance with this paragraph shall be expended, subject to appropriation, only for these purposes. In addition to the taxes on income otherwise authorized under this Article, there shall be an additional tax of 4 percent on that portion of annual taxable income in excess of $1,000,000 (one million dollars) reported on any return related to those taxes. To ensure that this additional tax continues to apply only to the commonwealth’s highest income taxpayers, this $1,000,000 (one million dollars) income level shall be adjusted annually to reflect any increases in the cost of living by the same method used for federal income tax brackets. This paragraph shall apply to all tax years beginning on or after January 1, 2023
For your convenience, Article 44 of the Massachusetts Constitution:
Full power and authority are hereby given and granted to the general court to impose and levy a tax on income in the manner hereinafter provided. Such tax may be at different rates upon income derived from different classes of property, but shall be levied at a uniform rate throughout the commonwealth upon incomes derived from the same class of property. The general court may tax income not derived from property at a lower rate than income derived from property, and may grant reasonable exemptions and abatements. Any class of property the income from which is taxed under the provisions of this article may be exempted from the imposition and levying of proportional and reasonable assessments, rates and taxes as at present authorized by the constitution. This article shall not be construed to limit the power of the general court to impose and levy reasonable duties and excises.
My layman’s read of Article 44 is that the phrase “…tax…shall be levied at a uniform rate throughout the commonwealth upon incomes derived from the same class of property” means that any income tax the state levies (with income from labor being considered to be a form of income derived from a class of property) must be flat — i.e., the state of Massachusetts cannot implement progressive income taxation.
S5 amends Article 44 to allow the state to tax only income over $1,000,000 per year at an additional 4% on top of the flat tax, currently, 5%, for a combined rate of 9% and specifies that the new revenue must be used for education or transportation infrastructure only (more on this later). To ensure that cost of living increases don’t lead to a tax hike for the middle class down the line, the amendment specifies that the $1,000,000 line will be adjusted upward annually to account for inflation.
I strongly support this measure, and if I haven’t registered to vote in Connecticut by November 2022, I plan to vote in favor of it. Raising $2 billion1 by taxing the very wealthiest in the state to invest in education and transportation for the rest of us sounds good to me. And broadly speaking, voters support raising taxes on the rich to pay for things like infrastructure (especially over options like user fees or the gas tax):
That said, there were several efforts at the ballot box to raise taxes on the rich in the 2020 election cycle: two failures in solidly blue California and Illinois, and a successful attempt in the swing state of Arizona. These are all states that President Biden carried, so I think that examining how these efforts and soaking the rich performed relative to the Democratic Party brand can provide some insights for Bay State progressives as they prepare for the midterms.
Exhibit A: California Prop 15
In 1978, California voted 63-34 to pass Prop 13, which cut property taxes across the state. Prop 13 has since become the third rail in California politics, but progressives have long wanted to modify it, arguing that caps on property taxes make it harder to tax the wealthy, who own most property. Prop 13 also shares some similarities to Massachusetts’ 2000 Question 4, where the state voted 59-41 to gradually cut the flat income tax from 5.9% to 5%.
In 2020, Prop 15, which sought to modify Prop 13 to allow for easier increases of property taxes on buildings worth $3 million or more, failed 48-52 statewide:
The official ballot summary stated that Prop 15 would raise between $6.5 to $11.5 billion in new revenue to be spent on K-12 education and local governments. Proponents argued that it would maintain low taxes for homeowners while making multimillion-dollar corporations pay their fair share, while opponents focused on the potential impacts on small businesses.
Despite the measure explicitly exempting homeowners, the Los Angeles Times reported that opponents had argued that Prop 15 was the first step toward a complete repeal of Prop 13 and higher property taxes for all. A UC Berkeley poll found that many voters didn’t believe that the new revenue was needed, and people may have been unwilling to back a tax increase during the economic uncertainty caused by the pandemic.
At the end of the day, Prop 15 underperformed President Biden by 33 points, as he carried the Golden State 63-34. Voters were ultimately unwilling to touch Prop 13 and fearful of potential tax hikes on middle-class homeowners and small businesses.
Exhibit B: Illinois Fair Tax
Now California may not be the best example — Massachusetts doesn’t have a third rail tax law like Prop 13 (at least not one that I’m aware of), and S5 deals with the income tax, not a property tax. Fortunately, we have another case study to look at — Illinois’ Fair Tax amendment.
The current Illinois constitution only allows for a flat tax on income. The proposed Fair Tax amendment, as it was called by its supporters — the official name was the
“Allow for Graduated Income Tax Amendment” — would have done exactly what it says on the tin and allowed for a graduated income tax by removing the requirement that the income tax is flat.
The amendment did not specify what the new graduated tax rates would be but in 2019 the Illinois legislature passed SB 687, which would have established the graduated rates shown below had the Fair Tax amendment been passed by voters:
According to Wikipedia,
SB 687 includes an increase in corporate income taxes from 7% to 7.99%. SB 687 would also changes the state's property tax credit, which is a credit that some residents paying property taxes can claim to reduce their income taxes, from 5% to 6%. It also creates a per-child tax credit of up to $100 for couples earning less than $100,000 and single persons earning less than $80,000. The new tax rates do not include any taxation of retirement income.
Under SB 687 nobody earning less than $250,000 per year as a single filer would have seen a tax increase — meaning that only the top 3% of Illinoisians would’ve seen a tax hike, and the vast majority of voters would’ve been left with more money in their pockets. Yet the amendment failed 47-53 statewide in the 2020 election2:
So what gives? Sure, part of it can be chalked up to the fiscal conservatism of some of the traditionally Republican Chicago suburbs that went for Biden. But the amendment did worst in downstate Illinois, where many low-income voters would materially benefit from the tax relief in SB 687. I believe there are three main reasons why the Fair Tax amendment failed.
First, the Democrats who run Springfield have a bad track record on taxes. In an editorial opposing the amendment, the Chicago Tribune listed a series of broken promises regarding taxation, which I am selectively quoting:
“Illinois tollways will be freeways by 1973.” Promised conversion dates varied, but it never happened.
“The 1989 income tax surcharge is just temporary.” Not true. It was made permanent in 1993.
“I will hold the line.” In 2010, Gov. Pat Quinn said he would not permit an individual income tax hike higher than 1%. In January 2011, he signed into law an income tax twice that size.
The Fair Tax amendment did not preclude a tax increase on the middle class. While SB 687 only raised taxes on those earning over $250,000 a year, the language of the constitutional amendment left open the possibility of lawmakers raising taxes for regular folks. Indeed, a major argument that opponents made was that the amendment was a backdoor to future middle-class tax hikes. Proponents promised that they would only raise taxes on the rich, but they lacked credibility.
Finally, there was no specification on what the new revenue would be used for — it would just go into the state’s general fund. Understandably, voters were not enthusiastic about voting for an amendment that could lead to future tax increases on themselves with little idea of what the money would be used for (it doesn’t help that the Land of Lincoln is known for corruption scandals concerning public funds), which is why the Fair Tax amendment underperformed Biden by 23 points as he carried Illinois 58-41.
Exhibit C: Arizona Prop 208
So far all of this seems fairly depressing for proponents of S53, but Arizona provides a useful success story: the Grand Canyon State voted 52-48 to enact an additional 3.5% tax on income over $250,000 for single filers and $500,000 for couples. That’s on top of the existing income tax of 4.5% (Arizona has a graduated income tax ranging from 2.59% to 4.5%), and the revenue from the surtax would be used for education funding — specifically training new teachers and raising salaries for teachers who are generally underpaid given their qualifications:
Prop 208 outperformed Biden by 3.2 points (the president carried Arizona by only 0.3 points), with two key highlights:
It only targeted the rich — unlike the Fair Tax amendment, Prop 208 left no ambiguity about potential middle-class tax hikes.
A clear, popular use for the money — Prop 208 was framed as an investment in education and people value ensuring that their kids get a good education. Raising teacher pay polls highly, even if it means paying more in taxes:
Cut-and-pasting the Prop 208 campaign doesn’t guarantee passage of S5 — in 2018 Colorado voted 54-46 to reject Amendment 73, which would’ve moved the state from a flat income tax to a graduated rate system that raised corporate taxes and income taxes on those making over $150,000 per year to increase education funding.
Some unsolicited advice
While Massachusetts is one of the bluest states in the country, much more so than Colorado or Arizona, the midterm environment will favor the GOP, and suburban Massachusetts voters who went for Biden may still hold fiscally conservative views.
My view is that the crafters of S5 did a good job — the amendment raises taxes only on the very wealthy and specifies a popular use for the new revenue, the two key components of Prop 208’s success in Arizona. Proponents should emphasize the investment in better education and good infrastructure and be clear that the tax hike only hits the rich to defang arguments about raising taxes on the middle class (“Invest in Ed” is a great slogan to steal). My impression is that Beacon Hill doesn’t have the same bad track record on tax promises that Springfield does, but Massachusetts’ multibillion-dollar budget surplus may make it harder to argue that the new revenue is necessary.
But the elephant in the room is Gov. Charlie Baker, a very popular Rockefeller Republican who may or may not run for a third term in 2022. Baker has described himself as socially liberal and fiscally conservative and won reelection in 2018 with 67% of the vote. While the governor’s coattails haven’t been long enough to boost Republican candidates running for Congress or the General Court, Baker’s popularity and perception as a check on the overwhelmingly Democratic, free-spending legislature could pose a problem for S5 if the governor campaigns against it.
In fitting with his fiscally conservative views, Gov. Baker recently proposed a two-month sales tax holiday in light of the surplus and with the aim of boosting the economy after the pandemic (and pundits have speculated that this could become one of his signature campaign promises should he seek reelection). Top Democrats such as Massachusetts Senate President Karen Spilka (D-Second Middlesex and Norfolk) have already poured cold water on the proposal.
But progressives should think twice before blocking Baker’s proposal and seize the opportunity to do another bipartisan deal with the governor. Give both sides what they want — Baker gets his sales tax holiday in exchange for his public support for S5. According to a WBUR poll from 2018, this kind of bargain would be very popular4:
It should be noted that the sales tax is regressive — because the poor spend a greater share of their income on day-to-day expenses, they are hit harder by consumption taxes than the rich. A late summer sales tax holiday + the millionaire’s tax would take some of the burdens off of working families while ensuring that the super-wealthy pay their fair share and increasing the chance that the latter passes in 2022. It should be a no-brainer.
According to proponents of the millionaire’s tax — though I’d like to see more studies on the exact amount of revenue raised, I’m generally confident that it would be beneficial on balance.
You can check out precinct-level results for the presidential election, Senate race, and Fair Tax amendment using this map from City Bureau.
I’m referring to the proposed amendment as S5 because that’s the name of the bill passed at the Constitutional Convention putting the amendment on the ballot, once it gets on the ballot it’ll be called something like “Question X” depending on how many other ballot questions there are.
Obligatory disclaimer that this polling may suffer from acquiescence bias, but the millionaire’s tax is polling at over 60%, which is the rule of thumb for assessing a ballot question’s chance of passage.