The Massachusetts Budget Dilemma: Wealthy State, Inequitable Services

Monique Ching (she/her) �Policy Analyst

mching@massbudget.org

When I tell my friends about the state budget and taxes

We all pay taxes.

We all benefit from public services.

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So why don’t we understand them better?

Today’s agenda

• How the state budget works
• How tax revenue works
• How to make your voice heard
• Discussion

How I hope everyone will feel about the �state budget and taxes

How the state budget works

What is the state budget?

1) It’s the biggest bill the state passes every year.

2) It’s a set of inputs and outputs.

3) It’s a statement of our values.

It’s a set of choices we make about the kind of community we want.

The state budget is a moral document.

The state budget is a tool for:

• opportunity

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• health equity

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• racial justice

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• power

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Who creates the state budget?

What is in the budget?

Our Budget Browser tracks every line item since FY 2001.

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massbudget.org/�budget-browser

The Governor’s FY22 budget proposal

• Heavy reliance on federal relief to meet �ongoing needs.
• E.g. Proposes 24% decrease in state funding for �housing.
• No substantial new taxes for FY22.
• Tax collections have been strong, reducing political will.
• Many continue to suffer from effects of the crisis.
• Do we want to go back to the way things were before COVID?

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How tax revenue works

We must have a balanced budget.

Our State Constitution says:

Where does Massachusetts’ revenue come from?

Where does Massachusetts’ revenue come from?

What does our tax system look like?

Guess: What share of all the personal income generated in MA each year goes toward state and local taxes?

What does our tax system look like?

Guess: What share of all the personal income generated in MA each year goes toward state and local taxes?

Massachusetts’ taxes are average

Is Massachusetts a high-tax state?

Is Massachusetts a high-tax state?

Massachusetts has been a tax cutter: 1977-2016

These decades-old income tax cuts today cost about $4 billion/year.��These cuts affect essential services — and health equity.

Who pays Massachusetts taxes? �Fill in the chart

What are the correct numbers?

Who pays Massachusetts taxes?

Which chart is correct?

Who pays Massachusetts taxes?

A few tax terms

• Regressive taxes = Taxes that ask households with the lowest incomes to contribute the largest percentage of their incomes in taxes.
• Progressive taxes = The opposite of regressive taxes, which ask households with the most income to contribute the largest percentage in taxes.

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How can we make Massachusetts’ tax system more progressive?

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One option: �the Fair Share Amendment “millionaire’s tax”

Fair Share Amendment “millionaire’s tax”

• Would add 4% tax to income above $1 million.
• Would raise about $2 billion/year for education and transportation.

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The added 4% is only paid on the amount over $1 million

To get it, we need to change the state’s Constitution

The “millionaire migration” myth

• Are these alarming headlines true? Will millionaires leave the state in droves? — No.

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“Embedded elites” tend to stay put

• People with million-dollar incomes �migrate less often.
• They tend to be married, have children, be �embedded in communities.
• People tend to move for opportunities, housing costs, social networks, climate, etc.
• Millionaire tax flight occurs “only at the margins of statistical and socioeconomic significance.”

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Read more: Cristobal Young and Charles Varner, ““Millionaire Migration and Taxation of the Elite: Evidence from Administrative Data,” American Sociological Review, June 2016.

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How and when can I make my voice heard on the state budget and taxes?

Plug into a campaign or organization that’s fighting for the issues you care about.

A better budget is possible.��It’s time we all have a say.

Stay in touch:

mching@massbudget.org

@MoniqueWChing

Let’s talk about tax fairness

Which taxes are progressive/regressive?

PROGRESSIVE

• Federal income tax
• Taxes on wealth, e.g.:
• on stock market gains
• mansion taxes
• measures to prevent tax dodging by the wealthy
• Refundable tax credits for low-income people

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REGRESSIVE

• Sales tax
• Excise (use) taxes
• gas tax
• cigarette tax
• alcohol tax
• Tax breaks for wealthy households and corporations

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Massachusetts’ taxes are unequal

More regressive

Source: Institute on Taxation and Economic Policy, 2018

Higher taxes on the rich do not mean slower growth in million-dollar tax filings

• Increase the tax rate on corporate profits.
• Recapture some of the most egregious forms of off-shore tax dodging.
• Increase the tax rate that investors pay on income from the stock market, dividends, assets.

Plenty of options…