Everybody wants to see vibrant, bustling Massachusetts main streets in every town populated with thriving small businesses. So why are legislators proposing a policy that will unfairly tax small businesses at a higher tax rate?
Proponents of the so-called “millionaires tax” conveniently fail to mention that one group negatively impacted by this proposal are not millionaires at all. They are small businesses that happen to file their business taxes on the same form as their personal income tax. Unlike C-corporations, these businesses are called partnerships, sole proprietorships, limited liability corporations, and S corps. They make up most of the small businesses, like local builders and boutiques, or retail shops and restaurants. Despite the fact they probably aren’t wealthy, they would be treated like “millionaires” and face a 4 percent income tax surcharge.
This ill-advised tax proposal will especially hurt these entrepreneurs once they reach retirement age. Let’s say they opened a small business 30 years ago in Cambridge or Melrose and spent decades investing time, money and energy, and now they want to sell their business and retire. Over time, the price of the property where the business is located is likely to have grown exponentially because Massachusetts property values are at a premium. Their little parcel of land could now be worth more than $1 million.
The retirement the business owner counted on would include the sale of their business, assets and property, at the current tax rate. But if a millionaires tax becomes law, the rate for that one-time sale would jump from a 5.05 percent tax to a whopping 9.05 percent rate. A huge chunk of the nest egg they planned to use in their golden years would go to the state.
The Massachusetts Supreme Judicial Court struck down an identical tax proposed as a ballot initiative for the 2018 election. Other areas of the country that enacted similar taxes have seen devastating results as higher-income people left the state for more tax-friendly places. Massachusetts small business owners will be stuck, however, and punished for simply owning and operating a business here.
Proponents of this tax call it the “fair share” amendment, but nothing about it is fair to small business owners. These men and women in your community are the ones that sponsor your kids’ Little League teams, donate to the local school fundraiser and provide jobs to your neighbors. To thank them, some legislators would like to increase their taxes, making it more difficult for them to retire comfortably.
The “millionaires” tax is promoted as a way to raise more money for state education and transportation spending. But history has demonstrated it is unlikely the increased revenue would go for those purposes. More likely, it would be rerouted to legislator’s pork-barrel spending projects or state health spending, which makes up 40 percent of the state’s budget.
Tell your local elected officials that small business owners are your friends and neighbors who strengthen your community and they should not be subjected to crushing tax rates through a deceptive tax hike scheme with a misleading name like the “millionaires” tax.
Christopher Carlozzi is the state director of NFIB, an association that represents thousands of small-business members in Massachusetts.