BOSTON — The state’s top earners could get squeezed out of Massachusetts by a new tax on millionaires, a report suggests.
A 4 percent tax on incomes more than $1 million, combined with the loss of federal deductions for state and local taxes, could double tax bills for the state’s wealthiest residents to an average of $318,095, the Pioneer Institute said Monday.
The millionaires’ tax will appear as a question on the November ballot, while the $10,000 cap on deductions for state income and local property taxes was part of federal tax reform.
Authors of the Pioneer Institute report say higher tax payments could send top-earners to New Hampshire, Florida or other low-tax states, hurting the Massachusetts economy.
"High income people in the rest of the country are going to be enjoying a tax break, but in Massachusetts that has been effectively eliminated because of Proposition 80," said Greg Sullivan, research director for the Boston think tank. "It's probably not a good calling card for Massachusetts."
Sullivan said Massachusetts policymakers need look no further than Connecticut to see what happens when the wealthy are overtaxed.
To close budget gaps, Connecticut doubled a surcharge on large companies, taxed luxury goods and raised the income tax for its highest earners. As a result, he said, the state has seen a huge loss of top-earners and a substantial loss of tax revenue.
"The results have been disastrous," Sullivan said. "From 2007 to 2016, the state placed 49th among the states and D.C. in private-sector wage growth."
Connecticut's tax burden was among the reasons cited by General Electric and Alexion Pharmaceuticals then they moved their headquarters to Massachusetts, he said.
Proponents of a tax on top-earners say they can afford to dig deeper into their pockets to pay for education and transportation upgrades.
"The reality is that the impact of the (state and local tax) deduction is dwarfed by the other tax cuts that the wealthy received under the tax bill," Andrew Farantino, a spokesman for Raise Up Massachusetts, a coalition of labor and religious groups backing the Fair Share Amendment on the November ballot.
"Regardless of what happens in November, they've been handed a huge gift by the federal government," he said.
To be sure, a recent report by the Massachusetts Budget and Policy Center, a left-leaning research group, estimated the federal tax cuts will reduce levies paid by the top 1 percent of Massachusetts earners by over $2.96 billion in 2019, an average savings of $82,720 per household.
That's compared to an average of $1,090 for the middle 20 percent of taxpayers, and $90 for those with the lowest 20 percent of incomes.
Farantino and other proponents of the millionaires’ surcharge say evidence that the wealthy will pack up and leave is anecdotal.
Nationwide an average of 2.4 percent of millionaires -- 12,000 households -- move to a different state each year, according to one recent study.
"Studies across the country have shown that people move to be be near high-paying jobs and their families," Farantino said. "There's no statistical impact of state tax changes on the migration patterns of the richest people. In fact, millionaires move from state to state at a lower rate than the rest of us."
In Massachusetts, a millionaire tax amendment would change a 1917 provision that requires a uniform tax rate for all citizens. The state currently has a flat 5.1 percent income tax rate.
The Massachusetts Taxpayers Foundation has estimated about 19,600 tax filers will be affected by the 4 percent tax, generating about $1.9 billion a year.
The latest "Wealth Report" by the Boston Business Journal found there were hundreds of tax filers on the North Shore and in the Merrimack Valley reporting at least $1 million in income in 2014, the most recent tax year available.
Andover topped the list in the region with 264 filers with incomes above the $1 million mark, followed by Marblehead, which had 168. North Andover had 116 and Beverly 99.
Manchester-by-the-Sea boasted 98 filers above $1 million. Gloucester had 56, Newburyport had 41, and Salem had 14.
Statewide at least 15,273 Massachusetts residents reported at least $1 million in income in 2014, according to the BBJ report.
Opponents of the millionaires tax have filed a legal challenge with the state Supreme Judicial Court.
Chris Geehern, vice president of Associated Industries of Massachusetts, said despite all the talk about taxing the rich the proposal would mostly hurt small and medium business owners who create jobs and keep the state's economy humming -- "not a bunch of fat cats sitting on the beach somewhere."
"We're not talking about multi-billion-dollar corporations, but corner grocery stores and small manufacturing companies," he said. "This tax would hollow out the sector that we point to as the cornerstone of our economy."
Christian M. Wade covers the Massachusetts Statehouse for North of Boston Media Group’s newspapers and websites. Email him at email@example.com.