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When Massachusetts officials released figures this week showing the new 4 percent tax on high earners could generate $2 billion or more in revenue in its first full year, the reaction was swift. And predictable.
“Opponents of the Fair Share Amendment claimed that multimillionaires would flee Massachusetts rather than pay the new tax, and they are being proven wrong every day,” Andrew Farnitano, a spokesperson for the union-backed group that launched the successful 2022 ballot question for the tax, told the Globe’s Matt Stout.
From one of those opponents, Paul Craney, a spokesperson for the Massachusetts Fiscal Alliance: “Whatever short-term financial benefit the state will receive from the income surtax will be outweighed by the long-term negative effect this tax is having on the state.”
Slow down, folks. It’s too soon to judge whether the new levy on annual earnings above $1 million, commonly called the millionaires tax, will be good or bad for the state.
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The news: The Department of Revenue said Monday that the millionaires tax brought in $1.84 billion from July through April, the first 10 months of the state’s fiscal year. If the trend holds, revenue would top $2 billion for the full year, double what Governor Maura Healey and state lawmakers planned to spend.
Reminder: Proceeds from the tax are earmarked for education and transportation initiatives. Most of the excess money raised would go to a reserve account available for one-time investments into projects or programs.
Why it matters: Excluding the millionaires tax, the state’s budget is being squeezed. All other tax revenue through April was just $89 million above the state’s forecast, which was already revised down by $1 billion in January. It was $263 million below the same period last year. Also in January, Healey cut spending by $375 million to mitigate a revenue shortfall.
Step back: The millionaires tax is no less divisive than it was in November 2022, when the constitutional amendment was approved, 52 percent to 48 percent.
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What supporters say: Investing heavily in better schools and transportation will not only lower obstacles to expanding the state’s knowledge-based economy, but also develop opportunities for lower- and middle-income families.
“The key question is: What is the net gain?” Phineas Baxandall, interim president of the Massachusetts Budget & Policy Center, a liberal think tank that has backed the millionaires tax, told me this week. “And I think the net gain here is clear and very positive.”
What critics say: The millionaires tax is hurting the state’s competitiveness by making it harder to attract and retain employers, and accelerating the flight of young and affluent residents to lower-tax locales.
“Those concerns remain,” Doug Howgate, president of the Massachusetts Taxpayers Foundation, a business-backed research and advocacy group that has opposed the millionaires tax, told me. “We need to go back to the goal of attracting people to stay in or move to Massachusetts.”
A nonpartisan view: The big dollars now flowing into the state’s coffers are only part of the story, said Evan Horowitz, executive director of the Center for State Policy Analysis at Tufts University. What we can’t see in the revenue data is how much money is being lost due to residents moving out of state or taking more aggressive tax avoidance measures. Horowitz has estimated those hits to income tax receipts at $500 million.
“It will always be hard to judge” the net impact of the millionaires tax, Horowitz told me. ”Give it a couple of years and do a trend analysis [of state revenues]. Then we will have a better sense.”
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Final thought: The money being raised by the millionaires tax is real. So is the risk that it won’t be spent effectively.
And there’s no dispute that Massachusetts is losing residents for multiple reasons. Evidence that the millionaires tax is accelerating the loss? It’s only anecdotal so far.
Everyone is entitled to their opinion. But until we’ve got more facts, there’s no way to say whether the millionaires tax is a boon or a boondoggle.
Larry Edelman can be reached at larry.edelman@globe.com.