Income tax

Massachusetts Voters Approve ‘Millionaire Tax’ as Californians Reject High Income Tax Hike

In the 2022 midterm elections, Californians, like those in Massachusetts, voted to give Democrats control of their state’s government. Yet these two left-leaning voters delivered opposing verdicts on similar tax measures aimed at raising income tax rates for high-income households.

With 57% No votes, California voters are resoundingly beaten Proposition 30, a ballot measure that would have added a new top marginal income tax rate of 15.05% applying to income over $2 million. At 13.3%, California already levies the highest personal income tax rate in the country.

With the defeat of Proposition 30, high-income filers and thousands of small business owners avoided being hit by a 1.75 percentage point, 13% increase in their marginal income tax rate superior. According to IRS data, in 2019, the most recent year for which data is available, more than 86,000 intermediate business owners filed under the personal income tax system. in California and have an income greater than $1 million. The number of them with incomes above $2 million is not defined by IRS data, but it is likely that tens of thousands of small business owners would have seen their ability to create and maintenance of jobs diminished if proposal 30 had been adopted.

The ride-sharing company Lyft
was the lead funder of Proposition 30, which directed the additional funding toward building electric vehicle infrastructure. Had Proposition 30 been enacted, the new 15.05% tax rate would have brought in an additional $3 billion to $4.5 billion per year, according to the projections of the Office of the Legislative Analyst.

Gov. Gavin Newsom (D), along with the California Teachers Association, urged Californians to reject Proposition 30, in part because it would make revenue less predictable. “California’s tax revenues are notoriously volatile, and this action would make our state’s finances even more unstable,” Newsom said. said of the proposed income tax hike.

“Proposition 30 is a special interest exclusion — a cynical ploy devised by one corporation to funnel state tax revenue into its business,” Newsom said. “California should know that this year alone, our state has committed $10 billion to electric vehicles and their infrastructure.”

“The election results are an unfortunate setback for the climate movement,” a spokesperson for Lyft said the day after the election. “Millions have been spent by the opposition to confuse and mislead voters, but we are not fearless…we remain committed to our collective climate goals.”

While voters in Golden State rejected a tax hike on high earners, in Massachusetts another “millionaire tax” proposal, question one, passed with nearly 52% support. The first issue is a constitutional amendment that will move Massachusetts from a flat income tax structure to a progressive one. Massachusetts currently has a fixed income tax rate of 5% and passing the first question will create a new rate of 9% on income over $1 million.

The first issue is expected to bring an additional $1.5 billion a year to the state coffers. While the progressive tax hike rejected by Californians would have been used to fund electric vehicle infrastructure, the income tax hike approved in Massachusetts will use the additional funds to increase spending on education and transport.

While the state teachers union was a major opponent of California’s income tax hike, they were the main supporter and funder of the Massachusetts income tax hike. . The California Teachers Association spent $5 million to defeat Proposition 30. The Massachusetts Teachers Association, meanwhile, spent $15.5 million to support the first question. The American Federation of Teachers also contributed $6.7 million to help pass the income tax hike.

While this tax hike was sold to Bay State voters as a way to make the rich pay more, small businesses will also be hurt by this tax hike. According to IRS data, more than 19,000 owners of sole proprietorships, LLCs, partnerships, and S corporations who have filed under the personal income tax system of Massachusetts in 2019 would have been affected by the 44% increase in the income tax rate imposed by Question 1. was in effect at the time.

By moving from a fixed income tax to a progressive income tax, Massachusetts becomes a national outlier

The first question marks the sixth time in the past 50 years that a measure to move Massachusetts to a progressive income tax has been put on the ballot. Previous efforts occurred in 1962, 1968, 1972, 1976, and 1994. In 2022, the first question became the first graduated income tax proposal to receive voter approval.

By moving from a flat income tax structure to a progressive income tax structure, Massachusetts is bucking a national trend as more states have moved in the direction opposite, moving from a progressive income tax to a lump sum income tax. In September, Idaho became the fifth state in the past two years where lawmakers enacted legislation moving from a progressive income tax structure to a flat income tax structure. Other states where lawmakers have passed legislation to move from a graduated income tax to a flat income tax in the past two years include Georgia, Mississippi, Iowa and Arizona.

North Dakota Governor Doug Burgum (R) has a proposal to move his state to a flat tax. Until the passage of the first question, the enactment of Governor Burgum’s plan would have made the state of North Dakota the 25th state with a flat income tax rate. Approval of the first question, however, will reduce the number of flat-tax states by one, bringing it down to 23 currently. This means enactment of the pending flat tax proposal in North Dakota would bring the total number of flat tax states down to 24.

One of 23 states now with a flat tax, Colorado received an income tax cut in the 2022 midterm elections. Proposition 121, which was approved with 65 percent of vote, will reduce Colorado’s flat tax rate from 4.55 percent to 4.40 percent. The passage of Proposition 121 marks the second state flat tax rate cut to be approved by Colorado voters in the past two years.

There are a number of takeaways from the results of these ballot 2022 measures. in states as blue as California and Massachusetts. Another potential conclusion for many will be that while the 2022 midterm elections went much better for Democrats than expected, the results do not appear to represent an endorsement of progressive policies, even in Democratic strongholds.