Lawmakers seek assurances on spending millionaires' tax money

Revenue Commissioner Geoffrey Snyder told budget-writers that his office expects the Fair Share Amendment surtax to generate between $1.445 billion and $1.766 billion in fiscal year 2024, which starts July 1.

BOSTON — Supporters and opponents of the state’s new millionaires’ tax are looking to Beacon Hill to ensure that money from the voter-approved constitutional amendment is used for its intended purposes.

Several proposals related to the so-called Fair Share Amendment have been filed for consideration in the upcoming two-year legislative session, many dealing with how and where the tax money will be spent.

Question 1, which was approved by 52% of Massachusetts voters in the Nov. 8 election, amended the state Constitution to set a 4% surtax on the portion of an individual’s annual income above $1 million. That’s in addition to the state’s 5% personal income tax rate.

The money collected from the tax is supposed to be earmarked for transportation and education, but questions have lingered about whether the Legislature could divert the money for other budgetary purposes.

Because the tax was approved, an amendment to the state Constitution the Legislature can’t change the law with a simple majority vote. That doesn’t mean lawmakers can’t make changes to state laws that intersect with the new tax.

A coalition of groups that backed the millionaires’ tax want lawmakers to update state tax codes to prevent wealthy couples from skirting their new obligations.

One proposal, filed by Rep. Jim O’Day, D-West Boylston, and Sen. Jason Lewis, D-Winchester, would prevent individuals who pay the 4% surtax from getting a tax rebate for those payments under the state’s 64F law, which requires the state to issue refunds when tax revenues grow by more than wages and salaries.

That 1986 voter-approved law was triggered last year, resulting in more than $3 billion in tax refunds.

Another proposal, which as also filed by O’Day and Lewis, calls for updating the state’s tax codes to require taxpayers to claim the same filing category on their state income tax returns as they do on their federal returns.

Andrew Farnitano, a spokesperson for Fair Share for Massachusetts, said changes would close a “loophole” in tax code that could allow wealthy married couples to reduce the amount they pay under the surtax by filing state returns separately.

Massachusetts is one of a handful of states that doesn’t require taxpayers to list the same filing category on both their federal and state income tax returns.

“Most states require that you make the same choice on your federal and state tax filings,” Farnitano said. “We haven’t really needed that until now, because there hasn’t been a difference in tax rates.”

Spending as intended

Meanwhile, critics of the millionaires tax are also seeking changes in state law to ensure the money is spent as intended.

House Minority Leader Brad Jones, R-North Reading, has filed a proposal to set up a new state fund to collect revenues from the surtax, which he says would “honor the will of the voters” by preventing the money from being funneled into the state’s general fund for other budgetary purposes.

“This would ensure accountability and transparency in the process to ensure that the money coming in is going to its intended purposes,” Jones said. “The proponents of the millionaires tax should support this. They have no reason not to.”

Another proposal filed by Jones calls for putting another constitutional amendment on the ballot asking voters to require revenues collected from the surtax be spent on education and transportation in addition to — not as a replacement for — existing state funding for those areas.

“Millions of dollars were spent making it clear that this was going to be new money on top of what we already spend on transportation in education,” Jones said. “This proposal would make sure that there is truth in that advertising.”

That proposal would require two majority votes by two successive legislatures over the next four years before landing on the ballot in 2027.

Shifting economic activity

None of the proposals filed by House and Senate lawmakers over the past several weeks call for repealing the voter-approved law.

Question 1 was by far the most expensive referendum on the November ballot, with groups on both sides spending more than $43.4 million to sway public opinion.

Backers argue the state’s top earners can afford to dig deeper into their pockets to drum up more money for fixing roads and bridges and providing more revenue for public schools.

But opponents say the tax will hurt the state’s competitiveness, drive away the wealthy, hurt small businesses and put a drag on the economy.

Much of the debate over the millionaires’ tax focused the issue of “fungibility” tax revenue and whether the Legislature could divert the money for purposes other than education and transportation. Critics of the tax argued there’s no guarantee, but supporters said the spending is now constitutionally required.

Many of the groups that opposed the millionaires tax have now shifted their attention to mitigating the impact of the new levy on taxpayers.

The Washington, D.C.-based Tax Foundation recently laid out a list of recommendations for Massachusetts policymakers to help offset the impact of the millionaires tax on top earners, such as policies aimed at reducing local property taxes and eliminating the inventory tax and estate or “death” tax.

“Massachusetts is a small state, and tax competitiveness matters now more than ever,” the group said. “As long as there are ways to shift economic activity to more competitive states, the income tax amendment is likely to underperform revenue projections and over-perform in its detrimental effect on the state’s economy.”

Christian M. Wade covers the Massachusetts Statehouse for North of Boston Media Group’s newspapers and websites. Email him at cwade@cnhinews.com.

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