Don’t Make Massachusetts

‘Taxachusetts’ Again
A proposed millionaire tax would accelerate the
exodus of wealth to New Hampshire and
Florida.
By Jim Stergios Sept. 9, 2022 2:55 pm ET

WSJ Opinion: The Middle Class Will Be Targeted in IRS Audit Crackdown

WSJ Opinion: The Middle Class Will Be Targeted in IRS Audit Crackdown

Review & Outlook: Analysis from the Congressional Budget Office, Syracuse University and the
National Taxpayer Advocate suggest Democratic Party claims that only high earners will be squeezed
in the IRS audit expansion are false. Images: Getty Images Composite: Mark Kelly

Unlike many blue states, Massachusetts has resisted the temptation

to raise taxes on high earners. That antitax fortitude is about to be
tested. In November state legislators will ask voters to approve an
amendment to the Massachusetts constitution adding a 4%
surcharge to annual income over $1 million.

Massachusetts is home to arch-progressives like Sen. Elizabeth

Warren and Rep. Ayanna Pressley, but many voters here remember
the 1980s, when the state was derisively known around the country
as “Taxachusetts.” A series of antitax popular initiatives in the 1980s
and tax cuts enacted by Gov. William Weld in the 1990s reduced
Massachusetts’ overall state and local tax burden considerably.
Proposition 2½, which limits both the levels and growth of property
taxes, was approved by voters in 1980 and remains sacrosanct.
Among states with income taxes, Massachusetts’ flat 5% rate is on
:
 the low side. In neighboring Connecticut and New York, the highest
earners pay 6.9% and 10.9% respectively.

Advertisement - Scroll to Continue

WSJ Opinion Live: Can Republicans Retake Congress?

Join Journal Editorial Page Editor Paul Gigot and Columnists

Kimberley Strassel and Karl Rove live from Dallas as they discuss
how inflation, Donald Trump and the Supreme Court’s abortion
ruling will affect the midterms. What’s at stake in the House and
Senate? Will the red wave hit as many predict? The panel will break
down what the election will mean for the economy, President
Biden’s legislative agenda, and the run up to the 2024 presidential
race.

WSJ+ members are invited to attend this exclusive member event

live in Dallas, TX, or via livestream online on Monday, October 17 at
7:00 PM CT / 8:00 PM ET. Purchase tickets to the live event in Dallas
or to register for the virtual livestream.

What was Taxachusetts has become New England’s economic

dynamo. Since the 2007-09 recession, wage and job growth in
Massachusetts has outpaced the nation. Sustained economic
growth produced a budget surplus exceeding $5 billion in the past
fiscal year, which makes it doubly odd to ask voters to approve a tax
hike now.

Connecticut’s economic arc illustrates the consequences of high

taxes—especially in cold, expensive states that residents and
businesses find easy to leave. In the late 1980s, Connecticut was a
comparatively low-tax state, ranking 17th in the nation in overall tax
:
 burden.

Under Gov. Lowell Weicker, a liberal Republican turned independent,

a flat income tax of 4.5% was introduced in the 1990s, and in
subsequent decades Connecticut politicians couldn’t resist adding
brackets and raising rates. Now the state’s overall tax burden is the
second heaviest in the nation and the economic fallout has been
disastrous. From 2008 to 2020, Connecticut ranked 49th in wage
growth and 48th in job growth. By 2020, it was one of only three
states where employment levels hadn’t recovered to pre-Great
Recession levels.

Advertisement - Scroll to Continue

Connecticut’s raft of tax hikes hasn’t translated into overflowing tax

coffers. In the year after its 2015 income tax hikes, revenues
generated by the state’s 100 largest taxpayers actually fell 45%.
From 2008 to 2022, Connecticut’s state budget grew by 37%, while
Massachusetts’s pro-growth policies fueled a doubling of the public
fisc.

The Bay State’s budget surpluses are the product of a competitive

tax environment that fuels private-sector activity. High taxes chase
off businesses and jobs and undermine the goals that progressive
taxers say they want to achieve via public investments. Economic
growth lifts all boats, including the ship of state. The extra money is
proving hard for even Massachusetts’ legislators to spend.

One might ask why state legislators, who put this constitutional
amendment on the ballot, are so determined to return to the bad old
days of Taxachusetts. The proposed tax, according to a Tufts
:
 University estimate, would generate $1.3 billion annually—a fraction
of the surplus generated by economic growth in the past fiscal year.
That tax revenue would come at a steep cost. Because the
amendment’s definition of income includes capital gains and “pass-
through” income from entities taxed via individual returns, such as
partnerships, sole proprietorships and S corporations, the proposed
tax would primarily affect retirees and small businesses.

While Massachusetts’ stable tax environment attracts residents

fleeing higher-tax states like New York, New Jersey and
Connecticut, those gains constitute a fraction of the net outflow of
Massachusetts’ people and wealth to lower-tax states, especially
New Hampshire and Florida. Even without a tax hike, the exodus of
wealth from Massachusetts accelerated sixfold over the last
decade. In the aftermath of the pandemic, states are competing for
talent. In the past two years, 25 states have enacted or implemented
individual and corporate tax cuts.

Advertisement - Scroll to Continue

Haunting November’s vote is the ghost of the 1980s antitax

movement. In the waning days of the state legislative session, Gov.
Charlie Baker announced that economic growth has brought the
state too many blessings: Overflowing coffers triggered, for the first
time in 35 years, an obscure 1986 law (itself passed via initiative
petition) that caps state tax revenue growth at the rate of statewide
wage and salary growth.

So, this fall, as voters head to the polls to decide whether to pass
the largest tax hike in the state’s history, they will do so knowing
that the state is at the same time rebating more than $3 billion to 3.8
:
 million Bay State households. House Speaker Ronald Mariano says
he may push to undo the 1986 law responsible for those rebates.
Try that and see what the electorate does.

For 30 years, Massachusetts has believed that a good economy is

the best way to fund government programs. But alas, big
government always wants more. If taxpayers lose in Massachusetts,
then Florida and New Hampshire will win—and a firewall against
economic stupidity will fall.

Mr. Stergios is executive director of Pioneer Institute.

State trooper vehicles standing guard at the statehouse in Boston, Jan. 16, 2021. Photo: Kenneth

Martin/Zuma Press

Advertisement - Scroll to Continue

:
 Advertisement

Scroll to continue with content

: