The Push for a Graduated Income Tax in Massachusetts

Raise Up Massachusetts, a coalition representing religious leaders, liberal community organizers, and unions, is advocating a constitutional amendment to raise income taxes on the state’s wealthiest residents. The proposal, which would affect those earning more than $1 million annually, would reportedly bring in additional revenue of up to $1.4 billion per year.

The Massachusetts Communities Action Network, one of the coalition’s co-chairs, has indicated that the additional revenue would be earmarked for education and transportation, two areas where a number of needs have gone unmet over the past decade.


Raise Up Massachusetts has previously lobbied the state legislature to raise the minimum wage and was successful with a ballot initiative that required employers to provide earned sick time to their workers. The constitutional amendment process, however, will take three years and will most likely face fierce opposition for anti-tax groups.

All Massachusetts residents currently pay a flat 5.15% income tax that will reportedly decrease to 5%. The “Fair Share Amendment,” as it’s called by its proponents, would raise taxes to 9% for those earning more than $1 million annually. The 9% rate would only apply on income over $1 million. Approximately 14,000 tax payers would be affected by the proposal, which comes at a time when legislators are renewing efforts to require those with higher income to take a greater responsibility in the taxation process. The “Fair Share” moniker comes from the fact that low and middle income taxpayers contribute more of their disposable income under a flat-rate system than the most affluent taxpayers.

kid writingProponents say the increased taxes could fund road and bridge reconstruction, investment in the MBTA and other regional transit bodies, and education funding— particularly for early intervention and post-high-school initiatives. Since 2002, state funding for education has failed to keep up with inflation, resulting in cutbacks in many school districts.

Opponents say that the proposal, if passed, would drive wealthy individuals away from Massachusetts. Voters have previously rejected ballot initiatives to move from a flat tax to a graduated income tax rate. A 1994 vote defeated a graduated tax rate with a 9.8 top rate, while a ballot question to establish a graduated income tax in 1972 was also defeated.

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MA Legislature Reaches Compromise on Tax Policy

Massachusetts Governor Charlie Baker reached a compromise with Massachusetts legislature and state business leaders last week regarding the earned income tax expansion. Presently, the state earned income tax credit is 15 % of the federal tax credit. The compromise will raise that percentage to 23%, or $1,459 per family.

The agreement represents the first steps toward addressing income inequality in the commonwealth of Massachusetts. Gov. Baker has stated that the current goal is to set state credit to 30% of the federal tax credit, however the present bump in percentage will already cost the state roughly $72.5 million a year. Negotiations regarding how to pay for the earned income tax credit expansion have been ongoing for the past several months.

Initially, House-Senate negotiators proposed repealing the FAS 109 tax credit, a tax break implemented in 2008 that would lower corporate taxes for publicly traded companies with assets across multiple state lines. The FAS 109 tax credit, representing $76 million a year in tax breaks, was passed to balance changes to corporate tax reporting requirements that required companies to pay more taxes on out-of-state income.

A report submitted in 2009 predicted that over the course of six years, more than $533 million would be saved by corporations thanks to FAS 109, with $472 million going to only 14 corporations. However, with the impact of the recession, the legislature never put the credit into practice.

Business leaders in the state opposed the repeal of FAS 109 to pay for the earned income tax credit expansion, stating that the credit had been made in good faith. The repeal, they argued, would be a break in trust between business leaders and the state; and would likely hurt the credibility and predictability of the state’s business climate. In addition, it would wreck havoc for companies that stood to lose years of anticipated credit in their accounting records.

Per the compromise, the FAS 109 will be delayed an additional five years. Previously, companies had seven years to claim the deduction. They now have up to 30 years to file a claim which will limit the cost of the deduction by stretching out payment increments over a longer period of time. Governor Baker, the House, Senate, and business leaders in the state seem pleased with the agreement and the cooperation demonstrated by all parties in reaching a compromise.