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With less than a month left for voters to decide where they will come down on the Constitutional amendment that would add a 4 percent surtax on annual household income above $1 million, each side of the argument made its case before the Charles River Chamber on Wednesday.

The question has been years in the making and by Nov. 8 voters will have to decide whether to shift Massachusetts away from the flat income tax rate structure enshrined in the Massachusetts Constitution to allow for the surtax that is designed to raise money for transportation and education spending. If the amendment is approved, the first $1 million of household income would still be taxed at the current 5 percent tax rate and household income above that first $1 million would be taxed at an effective rate of 9 percent.

It would add an estimated $1.3 billion in annual revenue for the state, according to a report published this year by the Center for State Policy Analysis at Tufts University.

Andrew Farnitano, communications director for Fair Share Massachusetts, used his pro-surtax argument Wednesday to emphasize the small number of very wealthy taxpayers who would be imposed upon to pay more in taxes and how that revenue would benefit the state more broadly.

“Regardless of what group we’re talking about – business owners or home sellers or all taxpayers – this tax is about asking those at the very top, the top one or two percent of those groups, to pay a little bit more, just an extra 4 percent on their second million, to make these really important investments that we need to make in transportation and public education, not just next year, but 10, 20, 30 years from now to have the sustainable revenue we need to make those investments,” he said.

Arguing against the surtax proposal Wednesday was Eileen McAnneny, the president of the Massachusetts Taxpayers Foundation, who made the case that adding a new tax burden on wealthy residents is only going to harm the state’s economic competitiveness and will drive high earners to lower tax states.

“I think it’s unnecessary at this time,” she said. “Massachusetts has so much surplus tax revenue, we’ll be giving $3 billion of it back to taxpayers. I also think that this will make Massachusetts less competitive than it is. And again, our economy is based on innovation, entrepreneurship, a highly-talented workforce, and I’m just concerned given the options they have in this post-pandemic environment that they’ll choose to live elsewhere.”

To back up his argument that the surtax would only affect people who can afford to pay more, Farnitano pointed to Department of Revenue numbers that show the surtax would apply to 24,000 households or 0.7 percent of taxpayers. And while the threshold would initially be set at $1 million – it would be adjusted based on inflation – Farnitano said that 70 percent of surtax revenue would come from people who make more than $5 million a year.

The surtax would not apply to businesses, but it could come into play for sole proprietorships or pass-through entities that pay personal income tax rather than corporate taxes. Farnitano said less than 3 percent of Massachusetts business owners have taxable personal income over $1 million that would be subject to the surtax. And when it comes to home sales, Farnitano said that there were 895 home sales last year (less than 1 percent) that would have been subject to the surtax because the gain in value minus deductions exceeded $1 million.

“So only a tiny percentage of home sellers would see their taxable income rise above $1 million, which is what matters to Question 1,” he said. “And let’s be frank, people who are making over a million dollars in profit from the sale of a home can afford to pay a little bit more on that second or third or fourth million to improve our public schools and fix our roads and bridges, which have a much more important impact on property values than a small change in taxes.”

A big part of McAnneny’s pitch Wednesday was that it is not prudent to embed tax policy into the state’s Constitution because making any changes to address unintended or unpopular consequences would require a complicated four-year process similar to the one that was required to get the question on this November’s ballot.

“To me, that’s very problematic, because … at a minimum, it takes four years to change it, should change be necessary. And all I would say is, I would point to how different our economy looks today than it did before the pandemic, just three short years ago,” McAnneny said. “And so this essentially does not allow the Legislature the authority to make any changes should they become necessary, and in the Mass Taxpayers [Foundation] view, they will become necessary.”

McAnneny also zeroed in on what Charles River Chamber President Greg Reibman called “the one issue that’s going to most confuse voters:” whether the money raised by the surtax is actually guaranteed to be spent on education and transportation. She said it guarantees that more money would flow into the state’s coffers, but not necessarily that more is spent in those areas.

“Even if every dime from this surtax goes to education and transportation as the proponents intend, it doesn’t mean that the Legislature has to continue spending what they currently appropriate on education and transportation,” she said. “As you all know, money is fungible. So the money from this can be guaranteed for education and transportation, but it’s not additive.”

The text of the amendment calls for the revenue to go towards transportation and education, but the Legislature retains the ultimate decision-making power over state spending and in a nearly $53 billion annual budget theoretically could use money that the surtax brings in to supplant existing state funding for transportation and education.

Farnitano pointed out that if the Legislature “wanted to do that they could do that today, this question doesn’t change the ability of the Legislature to spend existing revenues as they want.” But he also said he thinks the debate around net new education and transportation spending is “a distraction.”

“Every single legislator in the leadership of the both chambers, the likely next governor of the state, agree that we need more funding for education and transportation. They have a laundry list of projects because of the years of disinvestment that we’ve seen in the state. I don’t think there’s any question that their top priority in the next year’s budget, if this amendment passes, we’ll be increasing funding to our schools, increasing funding to the T and our roads and bridges,” he said. “It’s just not reasonable to expect that they’re going to spend it on anything else or even try to.”

The debate hosted by the Charles River Chamber was not the only surtax-centered event happening Wednesday. At roughly the same time, another surtax debate was going on at Salem State University between Max Page, president of the Massachusetts Teachers Association, and Dan Cence, spokesman for the Coalition to Stop the Tax Hike Amendment. That event was hosted by the Frederick E. Berry Institute of Politics.

Income Surtax Supporter, Opponent Square Off

by The Associated Press time to read: 5 min