Massachusetts: Coalition sues to stop the millionaire’s tax ballot initiative

At the end of the summer, we described the movement that is afoot to raise taxes on the wealthy in certain states. New York City‘s mayor had announced his plan for a “fair fix” tax on the “on [the] wealthiest New Yorkers to modernize subways and buses, [and] fund half-priced metrocards for low-income riders,” and Seattle’s 2.25 percent tax on the income of joint tax filers with income over $500,000, which passed in July, was taking fire in the form of three taxpayer lawsuits.

Also at the time, the effort in Massachusetts, known as the Fair Share Amendment, was well underway. It is scheduled to hit the ballot in 2018, and seeks voter approval for a new 4 percent tax on income over $1 million, which would be written into the state’s constitution.

But now, a group of opponents has sued to block the Fair Share Amendment. The group consists of the heads of five of the state’s most high-profile business groups:

• The Massachusetts High Technology Council (MHTC)
• Associated Industries of Massachusetts
• Massachusetts Taxpayers Foundation
• Massachusetts Competitive Partnership
• The state chapter of the National Federation of Independent Business (Coalition)

In an October 4, 2017 press release, the Coalition announced the filing of its lawsuit challenging the constitutionality of the state attor­ney general’s 2015 certification of the proposed amendment. The press release quotes the president of the MHTC, whose opposition stems from the fact that “Constitutional amendments are extremely rare, and none have been proposed to impose a specific tax rate on a specific class of taxpayer in our state constitution. When you amend the constitution, you prevent the Legislature from touching it. The process of setting taxing and spending policy via amendments will open the floodgates to a series of constitutional amendments.”

The MHTC president also worries that the new tax would “create a ‘competitive disadvantage’ that would be difficult for Massachusetts to recover from…We’ve made great progress from the ‘Taxachusetts’ days of 20 years ago when we had high tax rates, declining state tax revenue and rising unemployment.”

Reviving “Taxachusetts” is one reason for which the Tax Foundation also opposes the Fair Share Amendment, as we noted when we described the ballot initiative in June. The group pointed to the impact of any millionaire’s tax on pass-through businesses, which report their income on the owner’s tax return, not a separate corporate filing. As a result, the top rate would expose these firms, which account for 97.8 percent of all employers in the Bay State, to the fifth highest rate in the nation.

The Coalition’s press release asserts that the proposed amendment would affect about 19,600 residents, or 0.5 percent of all state taxpayers.

Opponents’ resistance also looks to a “minority” of people that “will move to states with lower tax rates, but the majority will choose to stay.” We covered this question in May 2017, and touched on it again in our June article. The analyses we pointed to, including a Center on Budget and Policy Priorities 2014 examination, found that “high-income people—like other people—overwhelmingly choose where to live based on work and business opportunities, family and social connections, and the draw of an agreeable climate.”

The Coalition’s lawsuit

In the complaint that Bloomberg posted on-line, the Coalition is asking the court to declare that the certification process itself did not comply with the state’s constitutional requirements and limitations, and to stop the amendment from being placed on the 2018 ballot.

The lawsuit asserts that it is not based on the public disagreements concerning taxpayer exodus, or on the opportunity costs of public spending choices. Instead, it is allegedly “about the negative impact that the Challenged Initiative” would have on the system of representative democracy. By constitutionalizing fiscal policy, the legislature would be “powerless to amend or repeal its provisions once their impacts become clear…[and] equally powerless to spend tax revenue” for any purposes other than those set forth in the amendment, which are education and transportation.

More specifically, there are three issues within two provisions of Article 48 of the state’s constitution:

1. Mixing topics: the lawsuit alleges that the Challenged Initiative combines three “very different subject matters,” in violation of the provision requiring that an initiative petition address only related or mutually dependent subjects. The suit contends that this prohibition is significant for preventing “logrolling, the process by which an unpopular provision is joined with a single initiative petition with a popular provision, making it more likely that both will pass.”
2. Earmarking of funds: Article 48 prohibits an initiative petition from proposing “a specific appropriation of money.” The complaint asserts that the Challenged Initiative’s ballot language ran afoul of this provision because it requires that the proceeds from the new tax can only be spent on education and transportation.
3. Legislative Control: the plaintiffs object to Challenged Initiative because it removes “control over revenue generation from the Legislature via a tax set in the Constitution.” The plaintiffs argue that there was no precedent for this at the time of the Constitutional Convention, and not even a discussion of it. Thus, supervising the “ways and means for the needs of the Commonwealth” rests with the “General Court, not voters.”

In response to the lawsuit, Raise Up Massachusetts, the grassroots organization behind the Fair Share Amendment, called out the “companies who are taking millions in public benefits,” whose “CEOs won’t pay their fair share.”

Opined one member of the Raise Up alliance, “It’s a shame that a few dozen of the richest individuals in Massachusetts are hiding behind secretive corporate lobby organizations like the High Tech Council and the Massachusetts Taxpayer Foundation to oppose the Fair Share Amendment.”

Said another: “Instead of supporting the Fair Share Amendment and the benefits that a well-educated workforce and a more reliable transportation system will create for their employees, their businesses, and our entire economy, these wealthy corporate executives are fighting the people’s right to vote, just to save themselves a small amount of money on their own personal income taxes.”

The press release referred to Raise Up Massachusetts analysis of state records revealing that “MHTC member companies have received at least $144 million in tax breaks and other incentives from the State of Massachusetts and local communities…[and the] average annual compensation of chief executives whose companies received public benefits is $12.3 million.” With respect to the lawsuit, there is confidence that “the Fair Share Amendment will withstand the challenge filed today with the Massachusetts Supreme Judicial Court.”