There are a couple of ballot questions navigating towards changing Massachusetts tax rules. They want to lower taxes. And this gets a little complicated. So, we're going to dive into the issue bit by bit. Reporter Chris Lisinski of the State House News Service explains how the state currently funds most of its state budget.
Chris Lisinski, SHNS: Taxes are the largest source of funding for the state budget. I think that the projected estimate for the current cycle we're in is something like $43.5 billion of tax revenue on a state budget that's close to $61 billion. So it'll actually give you a pretty good sense, you know, more than half of the state budgets. Money does come from taxes. Other sources are federal funding, and non-tax fees, but taxes are what make the whole thing click.
Carrie Healy, NEPM: How has that changed in recent years?
The most significant change in recent years has been the introduction of the surtax, also known as the 'millionaires tax' or the 'Fair Share Amendment' that voters approved in 2022. That added an extra 4% tax rate to income above about $1 million.
These days, it's a touch higher because of inflation, and that's been a real major driver of money for state government in the most recent budget cycle. Massachusetts collected nearly $3 billion just from that. And all of that money has to go to education and transportation. So that has been a really sizable shift in the way this has all worked.
What do the proposed tax related 2026 ballot measures want to change about state tax revenue?
One is really simple. It would take the flat 5% income tax rate and drop it down to 4% one percentage point, changing it by a fifth over about a three year period.
The other one is a little bit more complicated. I'll spare everyone some of the wonky details, but it would basically revise the formula used to determine when state government has collected so much in tax revenue that it needs to give some money back to taxpayers, and make it much more likely that Massachusetts hits that cap. At which point it says, okay, taxpayers, we took in too much. Here's a little bit of your money back.
Do you get any sense as to what one of the proposals, the one that would reduce taxes from 5% to 4%, what that would amount to in revenues?
I think, the quick back of the envelope math, as Mass Taxpayers Foundation President Doug Howgate told me, is about $5 billion, give or take. You know, income tax collections vary a little bit year to year.
Generally they increase with inflation and as wages and salaries grow. But where we're at currently, a one percentage point change would be about $5 billion. So even more than this massively impactful surtax has brought in.
Based upon challenges that Massachusetts is facing, the federal policy realignments to conservative priorities. What have lawmakers expressed in the last few months about potential cuts to state services, and how might lawmakers see these proposals in that light?
Lawmakers are already worried about needing to rein in programs that are really popular with their constituents. Given the prospect of federal funding cuts, especially to Medicaid and to food aid, if you kind of extrapolate from that position what it would be like for lawmakers to lose an additional $5 billion.
I don't think you're going to find many Democrats in the House and Senate who are in favor of this proposal. In fact, I think they will sound the alarm about this as a real serious threat to the quality of life and to the programs and services that many people rely on.
Who are the groups behind these proposals? What's driving them?
And so the primary proponents of this right now are the Massachusetts High Technology Council and the Pioneer Institute. They've got some other business leaders who are involved (and) who like the ideas but have not yet thrown their full institutional support behind it. And what these folks are saying is they think that state spending is out of control. There is some hard data there. The size of the state budget has grown significantly in the past five years at a rate faster than inflation, faster than the growth in wages and salaries across Massachusetts. And what these business leaders told me is they want to rein that in.
They think that Massachusetts can be a more competitive place and a more affordable place for its residents. If voters force state government to reduce its size a little bit and hand some money directly back to taxpayers, rather than use that money on, you know, any kind of program you can imagine.
Chris, this is not the first time that tax related ballot questions have come before voters. What can history tell us?
It's a bit of a mixed bag in history. 25 years ago, nearly 6 in 10 voters were in support of a ballot question that slashed the income tax previously. I used to be close to 6%. That ballot question brought it down to 5%. There's some lengthy roll out there. So, you know, that's a direct corollary to this.
There was support for something similar 25 years ago, but voters just a few years ago approved a surtax on higher earners, a tax increase granted on a certain subset of the population. So, I think it's a little tough to try and extrapolate which way voters might be leaning in this case, because they've really gone in either direction based on what the question is and what the climate around it is.
