INSIGHTS AND RESOURCES
Massachusetts wealth tax ballot measure to return in 2022
INSIGHT ARTICLE |
Authored by RSM US LLP
On June 9, 2021, the Massachusetts legislature voted overwhelmingly to approve S.5, a proposal to legislatively amend the state’s constitution effective January 1, 2023, to impose a 4% additional tax on income in excess of $1 million, subject to annual adjustment for increased costs of living. The passage of S.5 paves the way for the proposal to appear as a state ballot measure in 2022, and avoids procedural issues that allowed opponents to convince the Massachusetts Supreme Judicial Court to put a stop to a nearly identical ballot measure in 2018. If voters approve the ballot measure, the state’s personal income tax rate will go up from a flat 5% on wages, long-term capital gains, dividends, interest, and other income, and 12% on short-term capital gains. This increase will give Massachusetts the highest personal income tax rate on short-term capital gains in the nation, and will align the state’s personal income tax burden with California, New York, and Minnesota rather than other states in the region.
RSM State and Local Tax policy experts share their views on this development.
Brian Kirkell: The rapid progression of this tax increase back to the ballot should come as no surprise. The original ballot measure in 2018 had broad support and was very likely to pass when it was stricken for violating the prohibition against combining multiple independent subjects in a single ballot measure (in this instance funding for education and transportation). The legislative constitutional amendment process avoids this procedural problem, and there is a high likelihood that this particular tax increase will happen. But, should it? Flush with higher-than-ever federal funding and above-forecast state tax revenues, the Massachusetts seems well positioned to replenish its rainy day fund, increase funding for education and infrastructure, and win the post-COVID boom without raising taxes. It seems like strange timing to set out to deliberately make living and investing in California look more attractive from a state tax perspective, especially with New Hampshire right next door and Florida looking like it is not so far away in the emerging flexible work environment. Massachusetts is clearly betting that the state’s well-educated workforce, top-rated health care system, and overall economic strength will outweigh an additional 4% tax in the minds of entrepreneurs, business owners, and highly compensated employees. But, that is a bet Massachusetts did not have to make.
David Brunori: I agree with Brian that the timing of a push for significantly higher taxes on the wealthy seems odd. Massachusetts does not appear to need more revenue at this moment. As Brian noted, the measure seems unnecessary. I am less sure that the people of Massachusetts will vote to support this measure. I think many folks in the Bay State will be weary of returning the Commonwealth to a land of high taxes. Older residents will certainly remember that their state was once known as Taxachusetts! More fundamentally, I think raising taxes on the wealthy is a poor policy choice. The wealthy can and do move. If the pandemic has taught us anything it’s that some people can work from anywhere. If it passes, the rich will not flee overnight of course. There is a cost to moving. But overtime the commonwealth will find out that taxing their wealthy citizens in this manner will result in, well, more of them living in New Hampshire or other tax friendly climates.
Although this ballot measure has yet to become law, Massachusetts taxpayers, particularly those with substantial short-term capital gains, should model the impact of a 4% tax increase, and consider whether relocation is a viable option.
Call us at +1 213.873.1700, email us at firstname.lastname@example.org or fill out the form below and we'll contact you to discuss your specific situation.
This article was written by David Brunori , Brian Kirkell and originally appeared on 2021-06-14.
2021 RSM US LLP. All rights reserved.
The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
Vasquez & Company LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.
For more information on how Vasquez & Company LLP can assist you, please call +1 213.873.1700.
Subscribe to receive important updates from our Insights and Resources.