One of the more important New Hampshire stories of the 2022 mid-term elections happened in Massachusetts, where voters approved a so-called “millionaires tax.” That vote represents a pivot back toward the old “Taxachusetts” days when Bay State lawmakers disregarded the interstate competitive effects of their tax policies.
When it takes effect, the “millionaires tax” will levy a punitive 4% tax rate on incomes of $1 million or more. That is on top of the state’s existing 5% income tax. This 80% tax increase for people who earn $1 million or more is likely to motivate a lot of people to seek shelter in places that don’t treat them as cash cows to be milked for the benefit of others.
Massachusetts abuts just one state that does not view people as resources to be exploited. That would be the live-free-or-die state. Accordingly, New Hampshire’s population of millionaires — and people who aspire to that status — should increase a bit in the near future.
The Center for State Policy Analysis at Tufts University estimated that the new tax will raise $1.3 billion next year for the People’s Republic of Massachusetts. That figure would be $2.1 billion, the center estimates, but tax avoidance strategies, including cross-border migration by high-income individuals, will cut the expected revenue by $800 million.
“Together, cross-border moves and tax avoidance would reduce millionaires tax revenue by roughly 35 percent,” the center concluded.
The $1.3 billion figure represents about 2.5% of the Massachusetts state budget. Advocates argued that the state needed this additional money, even though revenues were so high in the last fiscal year that the state was required by law to return $2.94 billion of state surplus to taxpayers.
This was a revenue grab, not a necessary tax increase. Legislators (who initiated the proposal) wanted more money, but didn’t want to raise general taxes, so they singled out an unpopular minority for excessive taxation.
Massachusetts residents who expect this revenue to go to roads and schools might be disappointed. The money goes into the general fund, not specifically to those causes. The Boston Globe observed that the narrower-than-expected margin of victory indicates a suspicion among voters that legislators will squander the money.
“That the measure passed by such a narrow margin — about 52 percent to 48 percent — says more about voters’ mistrust of the Legislature to actually follow through on spending those tax dollars wisely than it does their concern for the state’s wealthier citizens,” The Globe wrote in an editorial after the vote.
That’s not the only cause for concern. Massachusetts now has a graduated, not a flat, income tax. That creates precedent — and an invitation — for the introduction of other rates above 5%.
It also represents a shift away from Massachusetts’ efforts to shed its “Taxachusetts” reputation and make itself more economically competitive in the Northeast. If it continues to move in this direction, New Hampshire could enjoy some of the spillover effects, in the form of fleeing investors, entrepreneurs and capital.