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Passage of the millionaire’s tax will leave everyone the poorer for it

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The Boston Globe

Bruce A. Percelay

December 28, 2022

So why does the departure of wealthy people matter to those who earn significantly less than $1 million a year? Let's start with philanthropy.

Measuring the economic impact of the recent passage of Question 1 — better known as the “millionaire’s tax” — on Massachusetts is like determining the impact of a serious radiation leak; the damage doesn’t occur immediately, but you know it will cause harm over time.

While many proponents of increasing the state income tax from 5 to 9 percent annually on only those earnings over $1 million dismissed the warnings of economic damage as hyperbole, the fact is our competitive advantage against other states has just been severely diminished. We now join the ranks of Connecticut, New York, and California as places for new businesses to potentially avoid, and for existing businesses to possibly reconsider being here.

In the case of Connecticut, for example, overtaxation has decimated its tax revenue base and caused an exodus of those at the top end of the economic food chain. In the first year of its wealth tax implementation in 2015, Connecticut lost $2.6 billion in adjusted gross income as 29,000 people moved out, according to the Internal Revenue Service. That money largely moved to Florida, according to the US Census Bureau. Once one of the most prosperous states in the country, Connecticut projects deficits of $750 million to $1.2 billion between now and 2024.

Considering the Commonwealth just returned nearly $3 billion of surplus funds to taxpayers, the passage of the millionaire’s tax is especially perplexing. For Massachusetts to be convinced into thinking that a tax which has had such poor outcomes in other places is somehow going to miraculously help our state (proponents promise the tax gains will go toward education and transportation) is hard to rationalize.

So why does the departure of wealthy people matter to those who earn significantly less than $1 million a year? Let’s start with philanthropy. Nationally, individual donors were responsible for 69 percent of all charitable giving, according to the US Department of the Treasury. As past chair of several nonprofits, I know firsthand where donations come from and what would happen if those funding sources evaporated.

A significant number of donations to charities in Massachusetts come from local residents and when people leave the state, their charitable giving can leave with them. If Boston’s most generous philanthropists no longer feel a connection to Massachusetts, their charitable focus will shift elsewhere.

While it is too early to determine how many people will move out of Massachusetts in favor of tax-advantaged states like Florida, which has no state income tax, it is a certainty that some percentage of high-income individuals will head to greener pastures. For those who are applauding the notion that rich people are now finally paying their share, the irony is that Question 1′s passage will even hurt those earning minimum wage. Sadly, the 33,000 deserving public charities across the state will probably feel the impact of the loss of charitable dollars, as has been the case in states like Connecticut, and all of us will be poorer for it.

The Bay State has for many years unfairly suffered under the moniker of “Taxachusetts” but we have now rightfully earned the title. Hopefully the spirit of the Boston Tea Party will rekindle itself at some point in the future and overturn Question 1, but it is not likely to happen before meaningful damage is done to our tax base and philanthropic community.

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