MA has a flat income tax. Despite the name, this tax is not on millionaires, but people with incomes over $1M, which is hugely different.
As someone who is within the top 5% of household incomes, feels very wealthy for any practical needs, and is not even at half the threshold required to pay this tax, I am a huge supporter.
I’m a bit confused how they failed to accurately predict the amount of revenue this would generate though. Why isn’t this an easy task given they already have income numbers for regular flat taxes?
Is it people with regular incomes over $1M, or does it include windfall years?
Windfall years are hard to predict.
Also, it’s much easier to get to a $1M peak income (inheritance, individual contributor at IPO, etc) than to get to $1M mean income (become a VC or executive).
I’d be curious to see a histogram of the 5-year rolling average incomes of the people paying this tax.
I really give zero shits about people receiving windfalls of over $1M in a single year. They can pay an extra 4K per million just fine. There are no tears shed for these people.
I guess this tax is under 50%, but once you cross that line, things get bad fast.
Consider building a house after the trump tax hikes in California with $1M from the top tax bracket.
After income tax, there’s $490K left.
Next come the Canadian lumber tariffs, which increased base cost per square foot from $300 to $360, which is another 20% effective tax.
Now there’s only $400K left. (Covid also increased prices. Ignore that.)
A normal time to IPO is 5-10 years, during which time people accept a depressed salary. The windfall post-tax is only $40-80K per year per million paid out, and salaries are typically at least $50-100K under market value.
On top of that, there are local “screw the rich people that can build homes” fees and regulations that nearly double the cost of construction, so that $1M ends up being $200-250K in actual purchasing power. So, assume they but instead of build, and don’t pay those fees.
$490K is something like one third of a house around here, so the person ends up borrowing to cover the tax.
Their average income was something like $240-280K (pre inflation numbers, pre-tax), which is 91th percentile California household income, and those are “jackpot” years for that person.
However, they ended up paying two years pre-tax salaries (3 years post tax) in income tax if they buy a house, and 6 years post-tax salary if they build.
Of course, the above is nuanced, so most people are all like “yeah, screw the rich” without realizing these taxes disproportionately hit the middle class.
That’s why these taxes and gotcha fees are so popular with voters. California specifically targets people trying to build houses, which is one reason we have a housing crisis.
It’s “only” another 4%, but if the millionaire tax ends up increasing someone’s effective tax rate from 76% to 80%, then it cuts post-tax income by almost 20% and it hits people whose average incomes are middle class.
I have no idea if things are like this in Massachusetts.
I can’t follow it because you’re including all sorts of weird things like Canadian lumber taxes on a hypothetical house that someone is trying to build.
Building an expensive house in California is a specific choice that you do not need to make
Yes, I know snark is discouraged, but any time I hear this sort of plutocrat apologia, I want to respond, "oh yeah, why won't someone think of those poor, poor rich people with their million dollar windfalls". I always suspect a bit of astroturfing, but it's entirely possible that the propaganda has been internalized by those repeating it. But to them I say that if there's anyone in society you don't need to worry about, it's the rich (and anyone who's looking at a one mil windfall is going to be rich); they're going to be just fine.
In a sibling comment, I explained what the situation looks like for that group out here in California (hint: people paying these taxes can’t necessarily afford a house).
The top ten percent of people in the richest state in the richest country in the world are in fact rich. I'm sure they have their own status games they play that make them feel inferior to one another (what other point is there to such games?), and yes, they are small fish compared to actual plutocrats, but I assure you that they will find some way to make things work, just like the people who live off fractions of their income do.
These taxes reach far below the 90th percentile line here.
Also, money is not worth the same amount here as it is in other states. You may as well be comparing British Pounds and US Dollars without applying an exchange rate (except that the gap between the dollar and pound is currently smaller than the gap between US dollar in California, and, say, Arizona).
> money is not worth the same amount here as it is in other states
One of the problems of wealth no doubt, but I am still bereft of tears for them. Imagine trying to make due with the merely the median household income in such a rich state, and not even getting the odd million dollar windfall once in awhile. And then realize that half of households must make due with less than that.
The people who live in CA and are in the 90th percentile are making more money to compensate for it being a high cost of living area, so it all comes out in the wash.
It's difficult to predict because taxes are somewhat manipulatable. Will more compensation be deferred to avoid the tax? Will some people retire or move?
Rereading the article, which throws out a lot of misleading numbers, it sounds like their estimate was actually pretty close. So yeah I guess that seems reasonable
exactly - they're going after a segment that has the freedom, resources and will to respond effectively, with an entire industry supporting them. Now watch the state budget on these new revenue numbers and see the shortfall in coming years.
Does this also hit people with large amounts of accumulated wealth, or is it mostly aimed at the middle class?
I ask because, in California, when people cash out after an IPO, they often find that they pay over 50% marginal tax. This happens even though their average earnings over the time period where they earned the stock were nowhere near the top tax bracket.
On the other hand, ultra wealthy people involved in the same IPO have all sorts of mechanisms at their disposal that make it easy to avoid the big tax hit. (Most of the strategies involve taking on positive expectation risks with $100K’s of downside, which you should not do unless you’re a multi-millionaire)
Anyway, the people in the former group are sometimes called HENRYs (high earner not rich yet), and I get the impression that one group pays a much higher percentage of their earnings in tax than any other group. When these millionaire taxes are proposed, they usually target Henry’s, but not people that are wealthier than that.
The fundamental problem is that wealthy people have their wealth in assets and their cash comes in loans.
The best I can come up with is a tax on loans larger than X with assets that meet the points ABC used as collateral.
On the other hand though, I can make a case that they shouldn't be taxed anymore as it is. The assets they hold generate the majority of the taxes collected anyway. Bezos might not pay a lot in taxes, but amazon does and the amount it generates in sales taxes and income taxes is enormous.
It's a difficult problem and it's why progress has been stagnant in this area for decades.
Consider a billionaire that doesn’t work but has passive investments that pull in about $100M per year.
They can borrow against the assets for close to 0%, or they could donate the gains to their own charities, keep the assets in shell companies that own hotels they live in, etc, etc.
This 4% millionaire’s income tax won’t touch any of that.
My favorite part about this tax is that it was passed in the same year that the state had a budget surplus and actually cut checks to residents because of it.
These type of articles are a riot: praising new taxes like they are a boon instead of primarily a political class grift with rare additional benefit to the citizenry. And especially not any that overcomes the economic drag.
tax the rich - the segment that has the flexibility and resources to avoid and mitigate - into a "reserve" account where politicians can fund "one-time" projects... this is a recipe for politically-motivated pet projects that deliver little value, and will eventually be downloaded to the middle and lower classes.
Hold on: I have to calm my shivering nerves after the intimidating meaningless jargon and threat to evaluate "the science", whether or not you actually have the ability to do so.
I'm contending that you putting words in my mouth is garbage rhetoric and that you should know better.
That higher tax revenue is not an absolute good; primarily because those who impose taxes are incentivized to do so via variously legal and unethical pay that diverts tax funds from their supposed intent back to these people. To the point that the supposed intent should be assumed to be often false until otherwise proven not only by funding but by results.
And that the economic system in general is inherently flawed to the point that there is no solution that will satisfy most people either via trickle-down economics nor via heavy taxation. A slave system is not fixable by free markets, socialism-communism (old school if militant feudalism hidden so that low-wits can get behind it), nor by anything else.
I'm not saying that I have a better solution as far as maintenance of civilization is concerned, but only that the system of money is fundamentally a people-ownership system that inherently cannot offer solutions, either, and out of which no ethical nor practical justification for high taxation is possible. Unless the goal is explicitly to create wealthier feudal lords that do absolutely nothing but to extract taxes to support themselves.
Everyone should pay their taxes.
No one has to accept the lie that more taxation is good taxation.
Only bested by communist propaganda. I'm not a libertarian. I'm also not one to be berated into professing that the opposite of disapproving of ever more taxes is libertarianism nor anything else. The justification for ever more taxes can be intellectually contested on its face.
Whoever said anything about communism? The idea of trickle-down economics is something that only seems to appeal to the rich and people who eat up the libertarian propaganda they produce or patronize.
Only "rich people" and "dupes for libertarianism" "seem to" prefer low taxes? This is seriously how you think you are going to participate in a discussion, and this is your premise that you think needs to be debated?
In citing communism, I was only matching your hyper-defensive snark and substance avoidance by throwing around a roughly opposite term that is meant to have a negative connotation. Just as you have repeatedly done by introducing a negative connotation for "libertarian", which again I absolutely am not. Libertarian ideology is not the opposite of pro-tax policy advocacy. What else?
> Only "rich people" and "dupes for libertarianism" "seem to" prefer low taxes?
I think your problem is you're treating "trickle-down economics" as a synonym for "low taxes," when it isn't.
> In citing communism, I was only matching your hyper-defensive snark and substance avoidance by throwing around a roughly opposite term that is meant to have a negative connotation.
Communism is a dead boogeyman, while libertarianism is a thing that still has some life in it.
As someone who is within the top 5% of household incomes, feels very wealthy for any practical needs, and is not even at half the threshold required to pay this tax, I am a huge supporter.
I’m a bit confused how they failed to accurately predict the amount of revenue this would generate though. Why isn’t this an easy task given they already have income numbers for regular flat taxes?