Massachusetts Millionaire Tax and Big Economic Growth

Tax the Rich. Raise Money to Do Good Things. Your Economy Will Be Fine.

The Boston Globe reported that Massachusetts' modest 4% tax on any income over $1,083,000 (no surcharge for that first million+) collected more than twice what was expected ($3 billion, versus $1.3 billion). That is on top of a 5% tax on all incomes.

In what might sound like a familiar story, billionaire coddlers claimed that tax would devastate the economy, resulting in lost jobs and far less revenue than predicted. 

As usual, they were extremely wrong, and as usual, they will keep on making ridiculous claims, and keep getting quoted seriously in the media, who will gullibly repeat claims by other allies without providing serious analysis of whether they are true. (Notice NPR calls the Tax Foundation “nonpartisan” - when they are notoriously antitax, which means the label “nonpartisan” more than a little misleading. Do better, media!).

In any case, with the tax in place, The Institute for Policy Studies has shown that wealth has continued to explode in MA, as it has in Washington since we put our tax on extreme capital gains in place. Between that and far exceeding expectations in terms of revenue raised, I think we can call that tax a success.

Antitax Fundamentalists try to Strike Back

Now, that same anti-tax Tax Foundation quoted by NPR has released a list of complaints about the IPS study touting the revenue raised and the continued economic growth of MA. I decided I’d give it a read, and see what it had to say. It’s pretty shoddy. I’m not even an economist and I can see that.

First, they complain about the IPS study’s use of income growth data from the years before MA passed the millionaire tax. How, they wonder, is that relevant to the question of whether the tax slowed economic growth? 

That’s a nice question, but the IPS study doesn’t make that claim. IPS simply showed that there was an increased need to tax concentrated wealth. They don’t think the only relevant question was the number of millionaires minted per year, nor do they claim that the number of millionaires minted in the years before the tax tells you anything about cause and effect. Nice try though!

Second, the Tax Foundation argues that the growth in incomes in Mass should be compared to a “baseline” to establish whether the tax has had any net negative impact. They then use a map that shows a faster growth in millionaires in mostly red states during the 2018-2022 period.

Ironically, this is the before the MA tax was instituted, the exact thing they whined about above. But now the Tax Foundation is claiming were are trying to understand the net economic impact of the tax. So why use data they already told us is irrelevant? (The income data for the latest years wasn’t available, which is fine, but that still doesn’t justify this sort of idiocy).

The Foundation admits that there could be other factors (really? taxes aren’t the only thing that impacts economic growth and migration!?), like coastal views or cheaper housing that impact people’s decisions - but then dismiss that these tell us anything useful.

Interestingly, when they note that the growth of millionaires in 2018-2022 was slower in high tax places, they name-checked the Pacific Northwest as a bad example.

Apparently they didn’t look up the fact (that they document elsewhere!) that Washington taxes are below average (and Oregon is close) and that Washington taxes are way below average for rich people, and were even more lower in 2018-2022. 

They ignore the obvious relationships between land prices and the growth of millionaires in this four year period-millionaire growth is fastest in relatively cheap places (duh!), and those places have also seen the most land price appreciation post pandemic, which also minted tons of millionaires. 

They ignore obvious counter-examples (like low tax Washington!). Maine and Vermont have much higher taxes than we do, and are in the top tier of taxes, and their millionaire growth is through the roof.  

They forget to mention the tendency of millionaires to own more than one home, and to domicile for strategic tax avoidance too. 

They quickly brush over a stat that shows that over a 14 year period, Massachusetts’ rate of minting millionaires was about the same as the nation as a whole. Whoops! Maybe generally higher taxes aren’t so hurtful after all?

Anyway, none of their “analysis” tells us a damn thing about cause and effect of the millionaire tax in particular, or taxes in general. Their simplistic storytelling is just that. A made up story. But their lackeys in places like the Republican Party and Chambers of Commerce buy this stuff with the zeal of a fundamentalist convert.

In fact, if the Tax Foundation was serious about their method of “analysis” - why did they pick just a four year period and just the growth of millionaires? Their headline says “Taxes Still Affect Economic Growth.” If they believe in this simplistic kind of thinking, why not at least look at a real outcome that rolls up decades of tax differences, like, say, how rich each person is on a per state basis?

You know why they don’t? Because that would embarrass the hell out of them.

Higher tax states are much, much richer than lower tax states, on average.

Now, I’m not going to try to snow you and say that high taxes made them rich, or ignore exceptions (like Washington, where we are rich and low-tax). Rich states may have adopted high taxes because they are rich. They may have adopted high taxes and become rich for other reasons (say, because they are more highly educated). The outcomes that create wealth are super complicated (multivariate regression, anyone?).

My point is simply to say that the people who keep spinning these stories about how taxing the rich hurts our economy are either cynical hacks or unserious fools. Ignore them.

And now comes the time I tap this sign again, from the world renowned experts who actually do the hard, sophisticated work to figure out the economic impact of tax differences by state.

Apologies for the earlier iteration which had some of my ugly notes at the bottom! Good look figuring out what they meant! I’m not even sure.