With Ballot Question 1, also known as the millionaire tax or Fair Share amendment, now in effect, top Beacon Hill budget writers must forecast how much additional revenue could flow into state coffers.
Economists and policy analysts offered varying projections, as well as strategies for managing and allocating the new infusion of tax dollars, during a fiscal year 2024 consensus revenue hearing Tuesday at the Massachusetts State House.
State Rep. Aaron Michelwitz and state Sen. Michael Rodrigues, chairs of their chambers’ Ways and Means committees, will drill down into testimony with new Administration and Finance Secretary Matthew Gorzkowicz before releasing the consensus revenue number — the one used in the developing budget. Significant figure offer – by the end of this month.
“I think what stuck with us was that there was a wide variety of opinions on how we should do it,” Michelwitz told reporters after the hearing, as he noted additional estimates.
“I think we’re going to have to dig really deep and figure out what’s the best way to approach this,” Michelwitz continued. “Clearly this is a unique situation in terms of building our budget that we haven’t faced in some time – and certainly not only in how we implement it, but in how we decide to allocate it. I think there’s still a lot of negotiation to be done between all the branches.”
In November Massachusetts voters approved Question 1, which imposes a 4% surcharge on all income over $1 million. Subsequent tax revenue should be earmarked for education and transportation investments, although the exact funding allocation is at the discretion of state lawmakers.
“Our intention is to be open and transparent, and to insist that additional tax dollars go to new initiatives in education and transportation,” Rodrigues told reporters. “It will be new initiatives – not supply – new initiatives in education and transportation.”
Department of Revenue Commissioner Geoffrey Snyder certified that the additional tax would generate between $1.445 billion and $1.766 billion in fiscal year 2024. Responding to a question from Michaelwitz, Snyder said it is “very difficult” to conclude with solid evidence whether or not Bay Staters are fleeing Massachusetts. An income tax, as critics of the ballot measure warned, could happen.
“Weirdly, it’s part of the discussion we’ve had in some of our meetings with some of the outside consultants that we talk to. It’s top of mind,” Snyder said. Time monitoring will have to continue.”
Northeastern University professor Alan Clayton-Matthews pegs the additional tax revenue for fiscal year 2024 at $1.116 billion.
And Evan Horowitz, executive director of the Center for State Policy Analysis at Tufts University, expects the state to collect about $1 billion in additional tax revenue in fiscal year 2024. Horowitz predicted that this additional tax would reduce the state’s overall income tax, as people would leave the state. Or find ways to reduce both taxes.
“At this stage of implementation there is a lot of uncertainty surrounding tax revenue for millionaires, which makes it risky to commit all that dollar,” Horowitz testified. “At a minimum, enough millionaire tax revenue should be included in the FY 2024 budget to cover a $500 million cut in income tax. More broadly, we think it’s safe and prudent to count on $750 million to $1 billion in fiscal 2024.
Yet in recognizing the fiat’s volatility, Horowitz suggested that any additional revenue derived from the additional tax be funneled into a separate savings account—much as the state handles revenue from capital gains.
Rodrigues advocated a similar strategy with reporters, as he proposed establishing a benchmark revenue figure for the additional tax and then depositing the additional amount into a separate fund.
“I think it would be a good model to move forward with this additional tax,” Rodrigues said.
Doug Howgett, president of the Massachusetts Taxpayers Foundation, refrained from offering a higher revenue projection in his testimony, citing a lack of information so far and the metric’s inherent volatility. Howgett said the full impact of the tax may not be felt until April 2024, when most of the tax revenue will be collected.
Howgate recommended certifying tax revenue to the state comptroller to provide a transparent number to the public. Lawmakers should pool that revenue into a separate trust, Hovgate said, with half for transportation and the other half for education.
“In ’23, we would strongly recommend not using any additional revenue for the remainder of this fiscal year,” Hovgate said. “We’re halfway through it, the budget position looks fine, you don’t have a transparent understanding of the additional revenue collected. We think it doesn’t make sense to use that revenue for the next six months .
In fiscal year 2024, by contrast, Howgate said lawmakers should establish a revenue cap to protect the budget from additional tax volatility.
Rodrigues remained noncommittal when asked about Howgate’s evenly split suggestion for education and transportation spending, telling reporters: “That’s yet to be said.”