You have heard that the states are laboratories of freedom. In those laboratories, sometimes experiments go wrong. Massachusetts is about to decide whether or not it wants to experiment with unlimited taxation, after adhering for years to a flat tax system. The Editorial Board of The Wall Street Journal explains:
New Englanders have long held a slight edge on their New York neighbors in fiscal sanity (if not always in baseball). Now progressives in Boston want to join New York and other nearby states in a high-tax arms race. Massachusetts voters have the choice to block a tax hike and preserve a revenue model that works.
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Bay State ballots in November will give voters the choice to place a 4% surtax on incomes above $1 million, bringing the top rate to 9% from 5%. The proposal would amend the state constitution to remove its flat-tax mandate. Passing the measure would rocket Massachusetts to seventh from 31st on the list of states with the highest marginal income-tax rates.
Democrats in the Legislature voted in June 2021 to place the tax hike on this year’s ballot. Gov. Charlie Baker, a Republican, laid out a case against the measure. “We have hundreds of thousands of people who are looking for work,” he said, referring to the state’s then-6% unemployment rate. “I don’t think we should be raising taxes.”
Massachusetts now boasts a lower jobless rate at 3.6% than New York and Connecticut, and lower taxes have helped the state’s economy and fisc. A $2.3 billion revenue surplus shows that the state is already taxing more than it needs.
This year’s tax haul was so big it triggered a largely forgotten state law that caps revenue. Residents may soon receive checks that refund a portion of last year’s taxes. In other words, Democrats are vying to raise income taxes at the same time they’re rolling in an embarrassment of riches. State House Speaker Ronald Mariano has proposed ending the revenue cap whether or not voters back the new tax.
Approving the tax would speed up a wealth exodus already under way. The Pioneer Institute last year noted that Massachusetts’ tax base has been eroding, and there’s no surprise about where the escapees are going. The top two destinations are Florida and New Hampshire, both of which lack an income tax.
The plot to scrap Massachusetts’ flat tax comes as several states race in the opposite direction. Arizona, Georgia, Idaho, Iowa and Mississippi all recently adopted flat rates on income. Lawmakers in these states are taking advantage of revenue surpluses to lay a foundation for sustained growth. Massachusetts residents have ever more flight options to consider if the tax burden at home gets heavier.
One irony is that New England states, which are typically Democratic when it comes to federal elections, sometimes choose GOP governors to hold down state taxes. But Mr. Baker isn’t running for re-election and Democrats are likely to retake the governorship. The constitution’s flat rate mandate is a crucial limit on the demands of interest groups for ever-more spending. If tax rates rise and the revenue cap goes away, spending will soar to snatch the new revenue and soon the politicians will return to seek even higher rates, as they always do.
Opponents of the proposed tax hike can take inspiration from Illinois, where voters in 2020 preserved their state’s 5% flat tax. To adapt a saying from a different state: If fiscal sanity can make it there, it can make it anywhere.
Action Line: If your state is preparing to punish you with more taxation, consider looking for a better America. Your state doesn’t even need an income tax. And some of them are fighting hard to be the home of your Liberty Retirement. Your best resource for finding the America that’s best for you is my list of Super States for 2022. It highlights the states that put your financial and personal freedom first. Click here to subscribe to my free monthly Survive & Thrive letter and be first in line to hear about any updates to the Super States.
E.J. Smith - Your Survival Guy
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