Gov. Charlie Baker, MassCPAs & Others Oppose “Millionaires Tax” Amendment
Question 1 on the Nov. 8th ballot proposes an additional 4% surtax on the income of MA individual taxpayers in excess of $1M. While the intent of the surtax is to raise additional revenue on higher income taxpayers to fund transportation and education improvements, critics warn that it will drive revenue out of the state. MA is ranked #4 in outbound migration of high-income residents between 2019-2020, and a MassCPA poll showed 73% of respondents would be at least “somewhat more likely” to recommend relocating if the amendment passes. Not only would it incentivize high-wealth individuals and “one-time millionaires” to consider a change in domicile, but the ripple effect could also mean an exodus of small businesses and large corporations alike following their targeted markets and workforce.
Chapter 62F Refunds Mean Money in Individuals MA Taxpayer Pockets
A Massachusetts General Law requiring the state to return excess tax collections has been triggered for only the second time since its passage in 1986. The total state tax revenue collected in FY 2022 was $41.8B, exceeding the allowable revenue of $38.9B by almost $3B. Under Chapter 62F, this excess must be credited back to the taxpayers that generated that revenue. Crediting this amount pro-rata based on 2021 income tax liability means that taxpayers can expect an estimated 13% refund. Anyone who filed a 2021 income tax return by the extended due date of Oct. 17, 2022 and who paid personal income tax is eligible to receive a refund. Once the amounts are finalized, the refunds will be issued automatically by check or direct deposit, starting in Nov. 2022. No additional action is required.
Proposed Changes to Estate Tax Would Increase the Threshold to $2M & Eliminate “Cliff” Effect
MA is already in the minority of states that charge an estate or inheritance tax and is currently tied for the lowest exemption. The current schema does not tax estates under $1M. However, once that threshold is tripped, the entire estate becomes taxable – what we call the “cliff” effect – meaning that an estate of $999,999 is not taxed at all but an estate of $1,000,001 is fully taxable. Proposed changes would increase the threshold to $2M and exclude $2M from the estate’s value, eliminating the cliff effect. For middle-class families, where one home and a small retirement account can easily reach $1-2M, this means that smaller estates would be exempt and that the tax would only be incurred on the incremental amount above $2M. For larger estates, because of the $2M “exemption,” each tier would be subject to a lower graduated rate than under the current scenario. These changes would have an enormous impact on middle class familial wealth hovering in the $1-2M range and could serve as a competitive incentive to higher income taxpayers to keep their domicile in the state.