BOSTON — A proposed tax on the state’s top earners would drive some wealthy residents out of state while others will find ways to avoid paying the new levy, which would cut into how much money it generates, according to a new report.
The report by Tufts University’s Center for State Policy Analysis estimated the state would collect about $1.3 billion in 2023 from the roughly 26,000 wealthy households that would likely be subject to the proposed surtax.
That’s substantially less than the $2 billion supporters of the tax have touted it would drum up for education and transportation spending.
The so-called “millionaires tax” referendum, which was cleared for the 2022 ballot, will ask Massachusetts voters to amend the state constitution to set a 4% surtax on the portion of an individual’s annual income above $1 million.
Supporters say it will mean more money to improve neglected public schools, expand child care options, and fix roads with potholes and crumbling bridges.
Opponents argued the measure would hurt businesses, drive away investment, and drag down the state’s economy as it tries to recover from the pandemic.
The center’s report doesn’t take a position on whether voters should approve the ballot question. It points out approval of the measure “could raise a meaningful amount of money” for the state but says that revenue could be whittled down if top earners decide to leave the state or shield their income to avoid paying it.
While the number of high-income residents who may relocate to other lower-tax states is likely to be small, the report’s authors concluded, tax avoidance could be “widespread” and cut “substantially into the amount of revenue raised by the levy.”
The report pointed out that high-earning households “have the connections and wherewithal to engage in sophisticated tax planning” and avoid paying taxes.
“Moreover, many of them are associated with partnerships and pass-through businesses that offer a lot of accounting latitude and are already known to have high rates of tax avoidance,” the report’s authors wrote.
Overall, cross-border moves and tax avoidance would whittle down revenue estimated by the center to be from $2.1 billion to $1.3 billion in 2023 – a 35% reduction, the report noted.
Despite that, the report said the new tax levy would produce much-needed money for transportation and education needs and is unlikely to have a long-term impact on the state economy.
“Just as decades of research on tax cuts have failed to reveal large stimulative effects, tax increases of this size are unlikely to meaningfully dampen economic activity,” the report’s authors wrote.
Meanwhile, a new poll shows overwhelming public support among Massachusetts voters for approving the new tax surcharge on the state’s top earners.
The MassINC survey released Thursday showed about 70% of those who responded said they would vote for the tax.
MassINC pollster Rich Parr said the results show that voters see a need to invest in the state’s transportation system, both to improve conditions and prepare for the effects of climate change.
He said they also appear to favor shifting the cost of public transportation away from riders, with majorities supporting discounts for low-income riders and making public transit free.
“For years, public transit has been expected to pay for itself in a way that other government services, including other modes of transportation, have not,” Parr said. “These numbers show that voters are open to shifting to a new approach to paying for transit.”
Christian M. Wade covers the Massachusetts Statehouse for North of Boston Media Group’s newspapers and websites. Email him at firstname.lastname@example.org.