On May 10, 2021, the Massachusetts Senate introduced Senate Bill 5 as its next step toward enacting the Millionaire's Tax. The General Assembly first approved the bill in the 2019 session. Now the bill must pass again by majority vote before the proposal appears on the next general election ballot. That’s because proposals to amend the MA Constitution must pass in two sessions of the legislature. Also, the MA Constitution requires an amendment to move the state’s tax from a constitutionally required flat tax to a graduated state income tax. If Senate Bill 5 passes, revenue from the tax increase would provide additional funds for education and transportation.
The Tax Increase
Some might remember that three years ago, the MA Supreme Judicial Court rejected a proposal to put the Millionaire’s Tax on the ballot. To avoid another judicial challenge, the current provisions adopt a different legislative procedure. Similar to the bill proposed in 2018, the current bill would increase the state’s income tax to 9 percent for annual income above $1 million beginning in January 2023. As a marginal tax rate increase, the higher rate would not impact the first $999,999.99 in earnings and the $1 million threshold would adjust each year for inflation.
The Battle Begins
The Massachusetts Department of Revenue previously estimated a revenue increase of approximately $2 billion, but some analysts believe the revenue may be even higher due to wealth increases of the rich during the pandemic. On the other side of the fight, business groups, citing post-pandemic concerns and a potential to prompt an exodus of businesses to low-tax states, have urged delaying the vote. Some analysts and business groups have also raised concerns about potential implications to retirement plans and business start-ups.
How MA Would Compare
The increase in marginal tax rate would vault Massachusetts to the highest marginal tax rate in New England (just slightly above Vermont’s 8.75 percent). However, Massachusetts would fall in line with Minnesota, New Jersey, New York, and Oregon and remain substantially lower than California’s income tax rate.
DGC will continue to monitor this situation and provide updates as we receive them. If you have questions about how the MA Millionaire’s Tax would impact you, contact a member of your DGC client service team or Scott Thomas, JD, LLM at 781-937-5172 / firstname.lastname@example.org.