The revival of the long-dormant tax cap after 35 years was enough to end the legislature’s $1 billion tax break initiative. Now some are wondering if the cap may also dampen the momentum behind a constitutional amendment that appears at the November election to introduce a millionaire tax.
The tax cap limits how much tax revenue Massachusetts can collect and requires the state to return to taxpayers any amounts collected in excess of the cap.
The cap will be triggered this year for the first time since 1987, and some analysts say a millionaire tax that could boost tax revenues by up to $2 billion a year could help trigger it again in years to come.
Eileen McAnneny, the president of the Massachusetts Taxpayers Foundation, said she thinks it’s possible. And she questioned whether it made sense to impose what she saw as a politically risky tax on millionaires when the cap simply returns a large part of the revenue the tax will bring back to taxpayers.
“If the state is able to give back billions of dollars, then it probably has enough revenue,” she said. “Is the millionaire tax really necessary?”
Andrew Farnitano, a spokesman for the Fair Share coalition, which is working to pass the millionaire tax, said the group has been looking into the issue. “We’re trying to figure out exactly what that means,” he said.
But Farnitano said the tax cap isn’t a big issue because the millionaire tax is a long-term initiative. He said the aim is to allocate more revenue to education and transportation in the state and to make the tax system more progressive by imposing a 4 percent surtax on income over $1 million.
“The fair share change is not about a budget or an economic cycle. It’s long term,” he said.
Budget analysts aren’t sure the tax cap will become a recurring phenomenon, but the cap’s formula offers some clues.
The upper tax limit results from multiplying the average increase in wages and salaries over the last three years by the “creditable income” of the previous year. If actual tax revenue exceeds this amount, the excess must be returned to taxpayers pro rata, meaning those who pay more tax get more back.
The tax cap was triggered this year as capital gains and corporate taxes soared while wage and salary growth lagged, largely due to the impact of COVID in 2020. With inflation rising and a recession looming, it’s difficult to calculate how tax revenues will react.
Phineas Baxandall, a senior policy analyst and advocacy director at the Massachusetts Budget and Policy Center, said he thinks the tax cap is unlikely to be triggered again anytime soon.
“By fiscal 2024, the first year in which most fair share earnings first appear, the calculation of allowable earnings will account for much of the inflation experienced in 2021 and 2022, as well as people’s return to work and reflecting income from capital gains should come in slightly lower due to the correction in the stock market,” he said in an email. “All of this is quite speculative, but some provide reasons not to expect the cap to have that much bite by 2024.”
Evan Horowitz, executive director of the Center for State Policy Analysis at Tufts University, agrees.
“I actually modeled this quickly, and I think that despite the millionaire tax, it’s a lot more likely that we’re going back to the world where that law doesn’t matter (almost),” he said.
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FROM THE WEB
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A Texas jury awards the parents of a first-grader killed at Sandy Hook Elementary School $4.1 million for mental anguish caused by false claims by Infowars’ Alex Jones that their child was not killed. (NPR)
The three Democratic and Republican nominees for governor and many local representatives push the Legislature to return to session to complete work on an economic development bill and tax break package. (Daily Hampshire Gazette)
Democratic attorney general nominee Shannon Liss-Riordan, who has made millions filing class-action lawsuits on behalf of low-wage workers, Transferred $2.5 million in personal funds to her campaign account last month, leading rival Andrea Campbell to charge that she is trying to buy the election. (Boston globe)
Republican gubernatorial hopeful Chris Doughty, who has been trying to position himself as a more eligible GOP candidate, is launching a website he is focusing on Attack on suspected Democratic candidate Maura Healey. (Boston Herald)
US Senator Elizabeth Warren endorsed Andrea Harrington, District Attorney for Berkshire County, in the Democrat district attorney primary. (Berkshire Eagle)
A Democrat and a Republican challenging State Rep. Ann-Margaret Ferrante participate in a forum, but Ferrante is absent after testing positive for COVID-19. (Gloucester Daily Times)
The Massachusetts Gambling Commission says it It will be several months before legal sports betting actually gets off the ground. (MassLive)
business owners and employees are girded for the disruption caused by the planned 30-day shutdown of the MBTA’s Orange Line. (Boston globe) Sen. Ed Markey and Rep. Ayanna Pressley asked the T to suspend fares on all subway lines and bus routes during the 30-day Orange Line shutdown. (Boston globe)
A proposed judgment in a patent lawsuit filed in federal court late Thursday would be good news for the Vineyard Wind project if the judge agrees. (New Bedford Light)
Floods in New England are get higher, according to NOAA. (United States today)
A cop from Fall River was fired The third officer has fired the department since January in connection with his domestic violence arrest. (Herald News)
A federal appeals court fired a lawsuit challenging UMass’s COVID vaccine mandate because both students contesting the law have since left UMass. (MassLive)
gannett reported posted a $54 million loss in the second quarter and warned of more layoffs. (Poynter) Here it is more by Dan Kennedy on what he calls an “ongoing tragedy”. (media nation)
About 300 US-based reporters for Reuters carried out a 24-hour strike from Thursday morning to protest deadlocked contract negotiations. (pointer)