Issue of Diversifying Revenue Streams Stands in Shadow of Millionaire Surtax

Is it wise and fair to try to raise $2 billion per year in new revenue for improvements to public education and transportation by instituting a surtax of 4% on the incomes of every millionaire in Massachusetts?

Seventy percent of the Massachusetts legislators who voted on this question last week believe it is.

I’m not a millionaire.

I will never be a millionaire. 

But, if I were a millionaire, I like to think I’d be willing to pay more taxes in some manner, not because I believe our government is doing everything right and using all of its resources efficiently, because it is not, but rather because we have been underfunding public education for at least the past 10 years and because the documented, unaddressed needs in transportation run well beyond $10 billion, and because I do not think we who have received, grace-like, the benefits of living in the most free, most prosperous, most opportunity-rich country in the world can afford to ignore those needs, giving as an excuse that government has to get its house in a (undefined and unattainable) perfect state of order before we’ll even entertain the notion of higher taxes.

It’s no fun paying taxes, I get it, and the justification for any of us paying more taxes is not nearly airtight, but this may be a time in history when we who are doing well have to sacrifice more dollars on the altar of government in the interest of preserving the system that has made our good lives possible and of ensuring the success and survival of that system.  Think of it as “taking one for the team,” with the team being your progeny and your neighbor’s progeny three and four generations hence.  Think also of the team as encompassing the golden-goose-laying Massachusetts economy, from which flows everything we like most about living in Massachusetts.

A sacrifice is a gift and it can take infinite forms, none higher than that of the men and women who have died in battle to keep us free.  (The farm boys from New England who served in the union army weren’t doing it for the pension -- and it was not fair that so many of them never made it home.)

The United States was built by givers, not takers; if the U.S. is to be preserved, it will be due to the sacrifices made, starting now, by its citizens out of love for country and concern for their children and grandchildren.

Having said all that, I have to confess I’m not sold on the millionaire surtax.  It seems too facile, one of those things that’s almost too good to be true.

We have roughly 20,000 millionaires in Massachusetts from whom we propose to extract approximately $2 billion more per year in income taxes through the mechanism of a voter-approved initiative, or referendum.  These millionaires are a small percentage of the overall population.  Yes, they are gigantic winners in the great lottery of life, persons who evoke more jealousy than sympathy. 

They have money.  We can take it.  Let’s.

There are two major problems with this scenario. 

Number one, those millionaires do not have to stay in Massachusetts.  What are the chances a significant percentage will move rather than submit to a 4% income surtax?  Most of them probably already have homes out of state; it will be just a question of selling their places in Massachusetts and changing legal residences. 

Number two, the millionaire surtax is the kind of thing that will get the attention of high achievers everywhere, thereby hurting the state’s reputation in the global economy and ultimately discouraging investment and entrepreneurship in Massachusetts. 

Senate Minority Leader Bruce Tarr, R-Gloucester, called the millionaire surtax “a penalty on success.” That penalty might not kill the buzz in Boston’s new Innovation District (a.k.a. the Seaport; a.k.a., the South Boston Waterfront), but it is bound to dampen the enthusiasm of some geniuses thinking of starting a company, or moving a company, here… and we’ll never know what we lost.

We should heed the words of John Regan, executive vice president of governmental affairs for the Associated Industries of Massachusetts (AIM), a centrist business organization.  In a Jan. 19, 2016, blog post, “Why the ‘Millionaire Tax’ Will Hurt Jobs,” Regan wrote, “Last week, the commonwealth was successful in landing the eighth largest corporation in the world (General Electric) to Boston.  The company is leaving its current home state (Connecticut) in part because of concerns about unfair taxation.  We should look long and hard at this (surtax) question that raises so much from so few and ask, does this imbalance make the commonwealth a better, or a worse place?”

When he testified on the millionaire surtax during a legislative hearing in 2015, Regan said, “Commonwealth means that there is a social contract with all the people and the citizens.  We are all in this together and that is reflected in our tax policy.  This amendment (the initiative calling for surtax) flies in the face of that.  There is a point of confusion relative to equity.  Those who make over a million dollars pay $51,000 (in income tax) while someone making $50,000 has a $2,500 obligation.  This (surtax) increase is anything but equitable.”

In response to a question from Senator Daniel Wolf, D-Harwich, Regan said that AIM has “historically supported other tax proposals.”  He emphasized, “We are not anti-tax.  Our concerns center on equity and the business climate.”

We should also heed Eileen McAnneny, president of the Massachusetts Taxpayers Foundation (MTF), an independent, 80-year-old public policy group with a hard-earned, blemish-free reputation for accuracy and honesty.

Testifying at the same 2015 hearing as Regan, McAnneny said, in part: “This (surtax) is placing a tax on less than one half of one percent of Massachusetts residents and will raise $2 billion dollars.  There are some inherent problems with this.  We are already over-reliant on the state income tax.  We need a strategy to diversify our revenue streams.  We are ranked fourth in the nation on our reliance on the income tax: 58% of our revenue…This (surtax) would increase the volatility of the revenue stream.  This is a tax for fewer than 20,000 people.  There will be an outward migration.  This will also have an impact on the revenue collected from capital gains.  This has potential negative consequences.  We need to adjust the revenue projections (of $2 billion) when considering these merits.”

McAnneny’s got it right. We need a strategy to diversify revenue streams.  The millionaire surtax is more like a scheme than a strategy.

 

 

 

 

Fate of Proposed Surtax on Millionaires Could Hinge on Three Simple Words

The plan to have Massachusetts collect about $2 billion more per year through a new 4% income surtax on millionaires seems to be encumbered by an unavoidable-but-possibly-fatal vulnerability.

The weakness consists of three simple words in the initiative petition, which is moving toward a statewide vote two-and-a-half years hence: “subject to appropriation.”

That phrase lies about a third of the way down in the text, which is as follows:

“Amendment Article XLIV 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, [bold faced added] 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 residents, this $1,000,000 (one million dollar) 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, 2019.”

In the Massachusetts constitution, it clearly states that initiative petitions cannot mandate “specific appropriations” from the state treasury.

To get around that prohibition, surtax proponents had no choice but to respect the prerogatives of the legislature by inserting into the measure “subject to appropriation.”

When a thing is “subject to appropriation,” it means a majority in both houses of the legislature must vote affirmatively every year to spend money on it.

So, in the case of income surtax revenue, there’ll be no conveyor belt automatically transferring the funds to the Department of Education and the Department of Transportation for as long as the surtax is on the books. Instead, the legislature would have to authorize every year, through multiple individual votes, the expenditure of surtax dollars on specific education and transportation items.  And the governor would have the opportunity to veto any item.

While polls have indicated that up to 70% of Massachusetts voters now favor the income surtax, that support is likely to erode when the campaign to approve the surtax referendum gets underway and opponents start driving home the point that the legislature will have the legal option of spending this new revenue on things unrelated to education and transportation.

Surtax proponents will have to present a complex case for improving public education at all levels and strategically addressing a confusing array of neglected transportation infrastructure needs across the state, while persuasively articulating why both objectives need to be attained simultaneously in order to ensure the long-term strength of our economy and a thriving, growing middle class. 

Opponents, on the other hand, will have the luxury of delivering a simple message over and over again: “If you give the legislature an extra $2 billion, do you really believe they’ll do the right thing?” 

Meeting in a joint session last week, the legislature voted 135 to 57 to place the millionaire surtax on the ballot.  If the legislature takes a similar vote next year – and last week’s margin of approval suggests it will -- the measure will be put before voters statewide in November, 2018.

 

First of Two Constitutional Conventions on Millionaire Surtax Was a Doozy

It was one of the more fascinating events to occur at the State House in a long time, this joint session on Wednesday afternoon, May 18, of the House of Representatives and Senate, or constitutional convention as it’s called when both branches meet in the House chamber to consider amending the constitution of the Commonwealth of Massachusetts.

The question before the convention was whether to advance an initiative petition that would bring about an amendment imposing a 4% surtax on annual household incomes of $1 million or more.  This new tax would be in addition to the existing 5.1% flat income tax paid by all residents.

Enough registered voters (157,000) have signed a petition to put the surtax question on the statewide ballot in 2018. But before it can be put on the ballot, at least 50 legislators must approve the measure during constitutional conventions in two successive years.  By a vote of 135 to 57, the legislature granted the first of those two approvals on Wednesday.

It has been estimated that: (a) somewhere around 21,000 Massachusetts millionaires would be affected by the surtax, and (b) the surtax would generate as much as $1.9 billion more per year in new revenue for the state.

During the three hours the convention was in session Wednesday afternoon, there were some very passionate arguments on both sides of the issue.

Surtax proponents denigrated the existing income tax as a “regressive” system hurting those “who can least afford it,” the poor, and spoke glowingly of surtax revenue as the solution to some longstanding funding woes in transportation infrastructure and public education.

Opponents questioned the constitutionality of a voter-mandated surtax because, as Senate Minority Leader Bruce Tarr averred, “Article 48 (of the constitution) provides the exclusive prerogative to appropriate funds to the legislature,” and warned of a likely exodus of the wealthy from Massachusetts if the surtax were adopted.

“In our constitution, referendums cannot earmark appropriations,” thundered Geoff Diehl, a Republican rep from Whitman.  “Make no mistake, the General Court (legislature) will be free to spend this as they wish.  This is nothing more than a bait-and-switch to open up tax rates for different income levels…Keeping the money you earn is a fundamental right in America and that argument began right here in Boston before this country was founded.”

Rep. David M. Nangle, a Democrat from Lowell, wasn’t buying what a lot of his Democratic colleagues were selling with the surtax referendum.  “It’s the introduction of class warfare: Tax the rich. Higher ed will become affordable!” he said.  “But I want to say the $2 billion would need to be a magic dust because, to cover all this spending (cited by referendum proponents), it will not be enough.  If it did come to pass, we’d be sitting here in five years having the same discussion: How do we get more revenue?”

Said Nangle, “There’s something wrong with the dialogue:  It’s stealing from the rich to give to the poor.  We are legislators.  We are not Robin Hood.  We’re shirking our responsibilities.  I hope the question does not pass.”

Nangle was one of 17 Democrats in the lower branch who voted against advancing the surtax.  The House Dems in opposition also included, most prominently, Majority Leader Ronald D. Mariano of Quincy, and the following:

Brian M. Ashe of Longmeadow, John V. Fernandes of Milford, Ann-Margaret Ferrante of Gloucester, Michael J. Finn of West Springfield, William C. Galvin of Canton, Colleen M. Garry of Dracut, Thomas A. Golden, Jr., of Lowell, Dannielle W. Gregoire of Marlborough, Christopher M. Markey of Dartmouth, James R. Miceli of Wilmington, Thomas M. Petrolati of Ludlow, Angelo J. Puopolo, Jr., of Springfield, Dennis A. Rosa of Leominster, John C. Velis of Westfield and Jonathan D. Zlotnik of Gardner.

The above 17 comprise more than 13% of House Democrats.

By contrast, only two Democrat Senators, Jennifer L. Flanagan of Leominster and Anne M. Gobi of Spencer, voted not to move ahead with the surtax.  There were seven votes in all against the measure in the 40-member Senate delegation to the convention.

Senator Karen E. Spilka of Framingham, the Democrat who chairs the key budget-shaping committee, Ways and Means, made a detailed case for the surtax.  “The (convention) conversation is more important than ever as you hear stories of how the middle class and working families are falling behind while top earners feel no or little pain," she said. "This isn’t just in Massachusetts.  It’s across the nation and part of our presidential campaign.  The argument proponents put forth is that high earners, who are the biggest winners in the economy, have the ability to pay more for the investments we need to make.  We must invest in our children’s education and our (transportation) infrastructure.”

Spilka continued:

“I’ve argued time and again that nothing is more important than the quality of our education system, which needs to keep up with the rapidly changing world.  All students need a well-rounded education, and we need to reinvest in these programs now.  We also need to invest in a world-class public higher education system to make it affordable to middle- and working-class students.  Before 1987, a student working a minimum wage job could pay their way through UMass Amherst with no debt.  Today, the average UMass Amherst student who takes out student loans graduates with over $30,000 in debt.

“The seeds of resiliency are planted in the first five years of life, so we must invest in early education.  Income disparities are evident at nine months, and (are) larger at 24 months.  We can and must do better for our youngest children.  Our transportation network is stuck in the last century.  According to the Boston Globe, 446 bridges are considered structurally deficient. These issues are not going away.  In fact, year by year, they’re getting worse. 

“People hate taxes, we get it.  But people should also hate the idea our children may not be getting an adequate education.  They should hate the fact their loved ones may waste hours of their lives commuting and going on unsound bridges.”

One of the most salient points raised on Wednesday concerned our state’s notoriously high health care costs.  Were it not for that, we might not now be having a debate on hitting up millionaires.   Here’s a simple, scary truth:

Almost all of the growth in state revenue over the past 15 years has been eaten up by the rising cost of the MassHealth (Medicaid) program, which now covers 26 percent of the Massachusetts population and accounts for 40% of the entire state budget.

Senator Jason M. Lewis, D-Winchester, noted that, “Of the growth in the state revenue since 2001, most has been consumed by rising health care, so it has not been available for many other needs.”

While annual allocations for health care have only ever gotten larger, the dollars for other priorities have been shrinking, he said. 

“Since 2001, local aid is down by 43%, EEC (Department of Early Education and Care) is down 22%, higher ed down 20%, public health down 23%, environment 23%, mental health 8%,” Lewis said. “We have been cutting and cutting in virtually every area except health care.”

Lewis, and many other legislators, believe our state has a spending problem -- but not, as he said, “the kind that Governor Baker likes to talk about,” that is, overspending.  Rather, he said, “We don’t spend nearly enough on a range of public priorities.  This has an impact!  Our families are suffering.  Our communities are suffering. And economic growth is suffering.”

If you’re a millionaire, you've had no worries about health care costs at a personal level.  But maybe now you do.  Or maybe now you’re just realizing you do. 

The high cost of health care, and especially the high and growing cost of Medicaid, is breaking the state budget. 

If you’re a millionaire, can you really be surprised when, as a budget distorted by health care gasps and groans, your less wealthy fellow citizens (and a large majority of legislators) gaze longingly at your bank account?

NOTE: All quotations in this post have been excerpted from a State House News Service account of the May 18, 2016, constitutional convention at the Massachusetts State House.

On Eve of Freight Rail Day, Thoughts Turn to Access and a Senator of Great Heart

Tomorrow, we’ll be helping to run the Massachusetts Railroad Association’s annual Freight Railroad Day on Beacon Hill.  The association is a long-time client of ours.

This is the day when we, accompanied by the professionals from the various member-railroads of the association, try to make as many visits as possible to legislators to tell them about the critical role that freight rail plays in the Massachusetts economy. 

These meetings usually go well.  Sometimes, however, signals get crossed, schedules get changed suddenly, and the person you’re hoping to see isn’t in when you get there.  This can get awkward.

Imagine a group of eight persons crowded into the foyer of a State House office suite. They tell the receptionist they’re there to see Mr. X, the policy director (or something) for Chairman X.  The receptionist dials Mr. X; the call goes immediately to voicemail.  The receptionist calls someone else, presumably the person in the cubicle next to Mr. X, and is informed that Mr. X is nowhere to be found.

“I don’t know what to tell you,” the receptionist announces.  “You can wait here if you’d like, or maybe come back later.  I’m sure he’ll return soon.”

That’s the situation I was in at Senate Ways & Means on the  afternoon of Freight Railroad Day on Beacon Hill, 2014 edition.

While the Massachusetts Railroad Association contingent lingered in the foyer, waiting on me, I guess, to suggest a brilliant fallback option (Hah!), Senator Stephen Brewer, D-Barre, the Senate chair of Ways & Means, opened the office door and started to make his way slowly through our group.  He smiled at everyone, said hello, and then stopped and said, “Can I help you?”

“Mr. Chairman,” I piped up, “we’re here from the freight railroads and were scheduled to see (X), but it turns out he’s not here now.  I probably messed up on the time.”

“Freight railroads, uh?” Brewer asked amiably.

“Yes, this is our annual Day on Beacon Hill,” I said.

Turning around, Brewer said, “Come on in.”

We followed him to the sunny conference room at the back of the Senate Ways & Means suite, which is one of the largest in the State House.  (It has to accommodate all of the Senate staffers who work on the state budget, as well as the chairman’s immediate staff.)

Brewer then proceeded to act as if there was nothing more he wanted to do at that time than to receive a briefing on the state of the railroad industry. 

He wanted to know the names of everyone in the group, the railroad each represented, the communities and regions served by each railroad, and the particular issues and priorities we were pressing in the spring of 2014.  He could not have been friendlier, more relaxed or more engaged.  In the warm glow of his personality, everyone talked freely. 

As the impromptu confab approached the 25-minute mark, I became concerned about overstaying our welcome. There was a brief pause and I jumped in.

“Mr. Chairman, I know you must have a lot to do today,” I said.

Leaning back in his chair, Brewer looked around the table and smiled easily, as if he were at a Sunday family dinner.  “I suppose I do,” he said.

Bernie Reagan of the Bay Colony Railroad said, “You were on the way out when we ran into you. You must have been headed somewhere?”

“I was going to the bathroom,” Brewer answered, laughing.  (If it was me, I would have said something like, “I was on my way to see the Senate President.”)

We laughed, too, nervously. We were infringing on the senator’s time and knew we should be on our way.

“Oh, that’s not good,” someone at the end of the table said.

We all shook the senator’s hand and thanked him heartily as we shuffled out of the conference room and down the long corridor to the outer door of the Ways & Means suite.

Brewer, who retired at the end of the 2013-14 legislative session, had no idea what we wanted to talk about when he encountered us that day.  We could have had some big, messy problem and been itching to drop it on some bigshot’s desk.  We could have been the advocates from hell. The whiners of the universe!

Brewer was one of the most powerful and admired public officials in the Commonwealth, immersed then in his work as the chief Senate budget writer.  (The Senate would introduce its version of the FY 2015 state budget within days.)  Everybody who wanted something in that budget wanted a piece of his time.

In a situation like that, almost every legislator I have ever known would have put up his mental shields and moved quickly through, and past, the gaggle of petitioners at his door.  “Hi, howareya, goodtoseeya, bye.”

That’s why I’ll always love Steve Brewer.

 

 

 

    

You'll Be OK, Governor, When Historians Ponder the Trump Phenomenon

Prior to World War II in the United States of America, Italian immigrants were commonly referred to as Wops and Dagos, and if an Italian immigrant achieved notable success in business, his wealth was often attributed to imagined ties to the Mafia.

No one looks back on that state of affairs today and thinks it was anything but an abomination.

Donald Trump has categorized all Mexican immigrants as “rapists,” and on Twitter he’s said “the overwhelming amount of violent crime in our major cities is committed by blacks and Hispanics...,” as if ethnicity and race were determinants of an individual’s criminal tendencies.

Trump has also proposed banning anyone who adheres to  Islam from entering the U.S., and creating a national database with information on all Muslims residing in the U.S., the better for government to track their movements, our sacred Constitution be damned.

Then there are Trump’s attitudes toward women; he’s long been a raging embarrassment on that score.  In an interview with Esquire magazine in 1991, he said, “You know, it doesn’t really matter what (the media) write as long as you’ve got a young and beautiful piece of ass.”

In “Trump: The Art of the Comeback,” published in 1997, Trump said, “Women have one of the great acts of all time.  The smart ones act very feminine and needy, but inside they are real killers.  The person who came up with the expression ‘the weaker sex’ was either very naïve or had to be kidding.  I have seen women manipulate men with just a twitch of their eye – or perhaps another body part.”

Millions of Americans already regard those comments, proposals and attitudes as abominations. And a generation from now, most Americans will not be able to comprehend how in God’s name the Republican Party nominated for president a man who thinks and speaks and feels that way.

Charlie Baker said the other day, again, that he will not vote for Trump in November.

I don’t know if our Republican governor was thinking in historical dimensions or concerning himself with how future generations might assess his position on Trump.

It could be that he simply believes Trump is not well qualified for the presidency.  (Our governor abhors incompetence.)

Either way, Charlie, you made the right move.