Opponents of Rhode Island's longstanding efforts to tax high-income earners don't have to look far to advance their case.
A year after imposing a surcharge on residents making more than $1 million, Massachusetts' tax revenues have fallen and its business-friendliness ranking has plummeted — a sign to critics that the Massachusetts wealth tax didn't work as intended, and a policy Rhode Island should avoid at all costs.
“Massachusetts has made significant changes to its tax code that are clearly having a significant impact in terms of taxpayer revenues going out of state,” said Laurie White, president of the Greater Providence Chamber of Commerce. “It's clearly shown to be hurting our state's economy.”
And Massachusetts' loss could be Rhode Island's gain.
Rhode Island Public Expenditure Council (RIPEC) In a report dated February 29th Rhode Island has touted its favorable tax position, surpassing Massachusetts for the first time in a decade in the Tax Foundation's 2024 business-friendliness rankings. Rhode Island has made great strides in improving its business tax environment, including eliminating a tangible property tax that was onerous for most small businesses. Massachusetts, meanwhile, dropped 12 places in the rankings after approving a state wealth tax.
Commonwealth voters narrowly approved a constitutional amendment in November 2022 to impose a new 4% surcharge on taxable income over $1 million, effectively raising the tax rate on that amount to 9%. Supporters hailed the measure as a way to address wealth inequality while also raising revenue for the state, with preliminary estimates suggesting it could bring in up to $1.5 billion in the first year. The money would be spent on education and transportation.
Massachusetts has made significant changes to its tax code that are clearly having a significant impact on taxpayer income moving out of state, clearly hurting the state's economy.
– Laurie White, President of the Greater Providence Chamber of Commerce
The Massachusetts Department of Taxation still expects revenue from the 4% tax surcharge to reach $1 billion in fiscal year 2024, according to revised estimates released Jan. 12. But overall tax revenues remain below both the original forecast and the revised benchmark set in January after six months of weakness.
of Latest figures as of January 2024 Monthly revenues are $263 million, or 6.8%, below forecast compared to the state's benchmark. Income tax revenues, which include the wealth tax, were down 8.7% in January compared to the benchmark.
Massachusetts Department of Revenue Commissioners Jeffrey Snyder said in a statement that the gloomy revenue picture was due in part to unfavorable increases in income tax refunds and declines in income tax estimates and refunds. The revenue report did not indicate how much of the income tax revenue came from the surcharge on the wealthy, and the department did not respond to further questions about the report or future projections.
Mass Exodus
There is not enough information yet to conclude whether the wealth tax is to blame for lower-than-expected income tax revenues, one research institute says. January 11th Report By the Massachusetts Taxpayers Foundation.
What's clear is that workers are fleeing the Bay State in droves. The same policy group in December It found that the rate at which people are leaving Massachusetts is the highest it has been in the past 30 years as of 2022. While the report doesn't include the income of people leaving the state, it also noted that the loss of residents cost the state $4.3 billion in adjusted gross income in 2020, based on data from the Internal Revenue Service.
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The Massachusetts Taxpayers Foundation did not return calls seeking comment.
To White, Massachusetts' most recent revenue report proves that the millionaires' tax has done the Bay State no favors in retaining or attracting residents.
“Post-COVID, we're seeing a lot of this being temporary in nature, with remote workers choosing to go to places that are more favorable from an economic standpoint,” White said.
A place like Rhode Island for example?
There are no signs of a mass exodus of Massachusetts billionaires seeking refuge in the Ocean State, where attempts to pass a similar wealth tax in recent legislative sessions failed.
But it’s fair to say Rhode Island isn’t facing the same financial challenges as its neighbor to the north. Latest Report The state is on track to collect $2.9 billion through the first seven months of the fiscal year, according to a revenue forecast released by the Rhode Island Department of Taxation that runs through January 2024. Personal income tax revenues came in below expectations, down 1.9% year-to-date from the figure budget writers projected in November.
RIPEC President and CEO Michael DiBiase said the “relaxation” of personal income taxes could be a cause for concern, but he's not ready to sound the alarm, even though alarm bells have already been sounded from Massachusetts.
“Typically we would be making revenue projections based on trends around this time, so we would notice any warning signs,” DiBiase said.
He also noted that while Massachusetts and Rhode Island have similar tax systems, with the exception of a wealth tax, Bay Coast tax revenues tend to be more volatile than Rhode Island's, which are relatively stable.
Still, RIPEC warned in a Feb. 29 report that a millionaires' tax in Rhode Island would “reverse progress” and “significantly worsen” Rhode Island's national tax rankings.
Companion Building The bill, introduced in the House and Senate by Rep. Karen Alzate and Sen. Melissa Murray, would impose a 3% surcharge on taxable income over $1 million starting with the 2025 tax year.
Alzate announced the proposal at a news conference at the State Capitol in January. Progressive Fellow Members of ParliamentThe Pawtucket Democrat said the estimated $126 million in revenue from the wealth tax could help pay for vital services like public transportation and housing.
Alzate is unfazed by Massachusetts' bleak revenue outlook, but he expects opponents will argue that Rhode Island should not impose a similar wealth tax because of Massachusetts' declining tax revenues.
“The opposition's argument is always that if you have a wealth tax, people will leave the country,” she said. “I've never seen any evidence that that's the case.”
Center on Budget and Policy Priorities 2023 Report They found that state taxes have little effect on where people move, and while wealth taxes did cause some migration, it wasn't the mass exodus that some had predicted: between 1999 and 2011, about 2.4% of millionaires moved out of state each year, compared with an annual migration rate of 2.9% for residents of all income levels.
Both Murray and Alzate's bills have been referred to committees in their respective chambers, but as of March 1 no hearings had been scheduled.
Gov. Dan McKee's proposed fiscal 2025 budget did not include a wealth tax or other major tax reforms. McKee spokeswoman Olivia DaRocha said in an email that her administration is “monitoring” the state's revenue totals compared to other states and that the latest revenue estimates are evidence that the budget strategy is working.
When asked for comment, House Speaker K. Joseph Shekarki and Senate President Dominic Ruggerio referred to the state’s January revenue report.
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