Tax advisers have long said it’s inadvisable to die in Massachusetts — one of the least generous states for estate levies — but now it may also be worth thinking twice about living there.
(Bloomberg) — Tax advisers have long said it’s inadvisable to die in Massachusetts — one of the least generous states for estate levies — but now it may also be worth thinking twice about living there.
At least that may be the case for those anticipating earning over $1 million anytime soon.
Massachusetts voted in favor of imposing a 4% surtax on taxable incomes over $1 million after a closely fought campaign. The levy, approved by 52% of voters in November, kicked in at the start of this year.
“Certainly, some of our clients have talked to us about how do they leave the state,” John Capone, managing partner for the Boston hub at accounting giant KPMG, said in a recent interview. “That certainly is something that that we knew was going to have an impact.”
The surtax revived memories from decades ago when the tax burden was so high that citizens’ groups dubbed the commonwealth “Taxachusetts.” Back in the 1970s, the share of income going to state and local taxes amounted to almost 14%, the third-highest in the nation.
Massachusetts now has a flat 5% income tax. About 0.6% of households would be hit by the new 9% rate, according to a study by the Tufts University Center for State Policy Analysis last year.
The Washington-based Tax Foundation estimated last year that the Massachusetts ranking in the policy-analysis group’s State Business Tax Climate Index, would decline to 46th in the country, from 34th, if the surtax passed.
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Advocates led by the Massachusetts Teachers Association say the “Fair Share Amendment” will channel billions of dollars of revenue to education and transport. Their campaign efforts overcame objections that Massachusetts has little need for extra revenue, given a 2022 surplus that proved so large it triggered a rare general refund to taxpayers.
The teachers’ group’s priorities for this year include expanded financial help to students at the state’s colleges and universities, and boosting pension payments for retired educators, which have been undermined by inflation.
‘Exodus of People’
The Boston Chamber of Commerce was among opponents of the measure, flagging concerns that the surtax would prove particularly painful to so-called one-time millionaires — such as those who receive more than $1 million in taxable income from selling a business or property.
“The timing of this couldn’t be worse,” said Jim Rooney, chief executive officer of the Boston chamber. “We’re already seeing an exodus of people from Massachusetts,” amid a “very competitive environment nationally” for businesses with high wage-earners, including top scientists, he said.
Rooney anticipates the full impact of the measure won’t be visible for years. The concern is that “when we look back, three, four or five years from now and say, ‘Why is Massachusetts not competing as well for business and talent,’ this is going to be part of the diagnosis.”
Business advocates also worry about the impact on certain categories of smaller firms that pay income-tax rates and will get hit by the increase.
Newly elected Governor Maura Healey, a Democrat, backed the new tax when running for office. At the same time, she pledged in her inauguration address earlier this month to be a “partner every step of the way” for the business community.
Healey also endorsed “several worthy tax-cut proposals” that were at one point on course to pass the legislature last year, but ultimately didn’t go through. Lawmakers balked after learning that about $3 billion of tax revenues would be returned to taxpayers under rules set by a 1980s ballot initiative many had forgotten.
That reform package included a doubling of the threshold for the estate tax, to $2 million. The current exemption level is the stingiest in the country, along with Oregon.
Combined with high housing and energy costs, the new income tax may diminish the appeal of the state in an era when working remotely is much more practicable than before the pandemic, business leaders warn.
“What I fear is — after passage of this amendment — that we look less attractive to investment,” KPMG’s Capone said. He noted that one county from New Jersey — a state that itself isn’t known for attractive tax rates — has already been advertising during televised Sunday football games to lure life-sciences businesses from Massachusetts.
Rooney at the Boston chamber said he’s urged Healey to make the state’s business competitiveness a priority.
“The days of just relying on Massachusetts exceptionalism — boasting about reservoir of talent — I don’t think that carries the day anymore, particularly in this grand experiment where people can work from anyplace,” he said.
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