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The Bad News from Taxachusetts

As part of its constitution, Massachusetts has a flat-rate income tax. Since 2020, that rate has been 5.0 percent and was actually higher in some previous years. Various interest groups have tried over the years to change the constitution so that the state government could impose a higher income tax rate on high-income people. Other people successfully and valiantly succeeded in fighting off those attempts.
This month, there was, yet again, a measure on the Massachusetts ballot to change the constitution and impose a higher tax rate on people with high incomes. Specifically, the measure called for a 4-percentage point surtax on the portion of people’s income in excess of $1 million. I had hoped to report that this measure failed.
Alas, I cannot. With 99 percent of the votes counted, 52.0 percent voted Yes, with 48.0 percent voting No. That means that it’s mathematically impossible for the measure to be voted down. If every single remaining vote were a No, that would mean that 51.5 percent are Yes votes and 48.5 percent are No votes.
That’s too bad for two reasons, one of principle and one of consequences.
The principled reason is that there’s a basic fairness in charging everyone the same percent of his or her income, and now that fairness is gone. You could, of course, reasonably argue that it was unfair to charge everyone the same percent because someone with, say, three times the income of someone else doesn’t get three times the benefits. But that criterion of fairness would make this latest increase even more unfair.
The consequential argument against a higher income tax rate on high-income people dovetails with the argument from principle. Now that the dam has broken and people will pay 9 percent on all income that exceeds $1 million, it will be easier to lower that threshold in steps. It wouldn’t be surprising if, in a few years, people making over, say, $900,000 annually will pay an additional 3 percentage points. Moreover, inflation by itself, with no new legislation, will lower that threshold in real terms.
The requirement that everyone pay the same tax rate on income restrained politicians from raising the tax rate substantially because they knew it would hit everyone. Indeed, sometimes that constraint led politicians to actually cut Massachusetts’ income tax rates. In 1992, for example, the tax rate was 5.95 percent. It fell in steps to 5.0 percent. Sadly, the constraint that led to that happy result is now gone.