Around this time next year, Massachusetts voters will likely be asked to opine on a constitutional amendment that would nearly double the state’s wealthiest residents’ income tax burdens.
Referred to by supporters as the “Fair Share Amendment” and known colloquially across the commonwealth as the “Millionaire Tax,” the proposed measure would create a new 4 percent tax increase on any annual taxable income in excess of $1 million. The new tax would be in addition to the existing 5.1 percent state income tax.
Lawmakers estimate the new tax would impact around 14,000 taxpayers and generate up to $2.2 billion in its first year. According to language in the amendment, funds generated by the tax will be earmarked exclusively for statewide education and transportation projects.
The constitutional amendment is expected to appear on the 2018 ballot, although a group of opponents is currently working to block it.
In the spirit of a new basketball season here in Boston, let’s break it down using a recently transplanted Bostonian as an example.
A few months ago, NBA superstar Kyrie Irving-and the remaining three years of his five-year, $94.3 million contract-was traded to the Boston Celtics. According to Spotrac, the leading online resource for sports salaries, Irving’s pre-tax base salary in 2019-2020 (the first fiscal year that would be impacted by the proposed Millionaire Tax) will be $21,329,750.
Under Massachusetts’ current tax code, Irving would be obligated to pay state income tax worth 5.1 percent of his total salary. Using that 2019-2020 base salary as our example, Irving would be on the hook for just over $1 million in state income taxes.
The numbers change drastically when you consider the Millionaire Tax. If approved, Irving’s gross salary will be taxed as follows:
Under the Millionaire Tax, Irving would be obligated to pay nearly $1.85 million in income taxes, an increase of more than $850,000.
Supporters say the proposed Millionaire Tax will generate income that the state badly needs. Opponents say it will place an unfair burden on the state’s most successful residents and ultimately prove devastating for Massachusetts’ business community.
Interestingly enough, a situation involving Gordon Hayward, another brand-new Boston Celtic, provided a microcosm of the local debate. While Hayward was weighing his options, a Congressional candidate from Utah named Tanner Ainge brought up the proposed Millionaire Tax in an effort to convince Hayward to re-sign with his hometown Jazz. Ainge’s argument-in essence, that the Millionaire Tax will keep wealthy people out of Massachusetts-was very similar to one currently being vocalized by local opponents of the tax.
Fortunately, both for the Celtics and for Tanner’s father, Celtics general manager Danny Ainge, Hayward packed up and moved to Boston anyway.
The future of the controversial proposal is unclear.
Earlier this month, a group of Massachusetts business groups filed a complaint to ask the state’s Supreme Judicial Court to block the measure from the 2018 ballot. But, assuming it makes it to the ballot, if the Millionaire Tax is approved next November, it would take effect Jan. 1, 2019.
As a professional tax advisor with New England’s largest regional business advisory firm, I can appreciate that this proposal is creating concern throughout Massachusetts’ business community. The 4 percent increase, if approved, will certainly be palpable. But there are financial planning and tax strategies that people can employ throughout the year in order to help plan for, and perhaps offset, the burden.
If you happen to fall in the small minority of Massachusetts taxpayers that would be personally impacted by the Millionaire Tax, I’d strongly urge you to contact your financial advisor to start preparing now.
In the meantime, go C’s!
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