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Rich-people tax working better than expected, state says

The State House News Service reports the state has collected $1.8 billion from rich people in new taxes in the first nine months of the fiscal year - $800 million more than state revenue officials had forecast for the entire fiscal year, which could be good news for the MBTA and schools. The money comes from a 4% surcharge on income above $1 million, as approved by voters in 2022.

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Comments

The MBTA should get ~$900 million, but I bet they won’t.

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a tax rebate for rich people.

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..has the MBTA getting $174M from the Fair Share tax so far. But that's based on $1.3B overall money, which we are now well above. The additional money is supposed to go to projects since they don't want to use it for operating funds just yet, since it might prove a volatile source of funding. They still need to balance between their ask, the House, and the Governor, so we'll see where things land. I agree though that the T should get a lot more money!

See page 5 for the breakdown:
https://willbrownsberger.com/wp-content/uploads/2024/05/FY-2025-SWM-Budg...

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And weirdly these people did not flee the state. Taxes for the rich are not the end of the economy. Back in the 50's and 60's when corporate taxes were higher the economy boomed.

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Under what circumstances would it make sense to flee the state? That costs money. If it's a one-time thing like a windfall, it may be cheaper to pay the taxes than relocate. If you regularly make more than a million a year, you can live wherever you want to (you probably already have multiple houses), and the tax is just going to be a minor annoyance.

I expect the only people leaving Massachusetts because of this tax are people who fantasize about making more than a million a year but probably never will.

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Human nature being what it is, I expect there will eventually be one or two people whose annual income is regularly above a million who flounce off to Texas or Florida over this. There are stupid people who have money, at least for a short period of time before their stupidity costs them (Mike Lindell comes to mind). But you don't get rich and stay rich by being stupid.

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I sold a business last year and if I had known it would happen and moved to FL or NH in 2022, the tax savings would have paid for a nice condo in Miami or home in Portsmouth.

For that matter, even going somewhere like PA where the tax would have been less than half would have had mid-high 6 figure savings.

Why didn't I do it? Because I didn't know anything was going to happen until weeks/days before, and I didn't have experience or a pre-existing pad in any of these other places I could easily relocate to.

Going forward, I am starting to think about spending some time in some of these other places as there's a chance something like this will happen again, and I might want to keep my options open.

For high earners, this tax moved Mass from the top end of low-tax states to the bottom end of high-tax states. It's a sizable shift, and for entrepreneurs like me who spend 10-20 years making low six figures and then cash one really big check (versus say a law partner/surgeon who makes high 6s from 45-60) it's almost a doubling of rates.

Now, lest there be any doubt, I consider myself very fortunate person, I am grateful for the opportunities I've had, and I want to see the Commonwealth fix its subways and maintain the great education system we have and make it more evenly great. I am not opposed to taxes and engage in no listed transactions or other aggressive tax avoidance. I try to be a good corporate and personal citizen and follow the campsite rule.

If I actually believed that the massive amount of additional money I wired to the DOR this year would really go directly and effectively to filling gaps in these crucial systems, I would pay it with joy and gratitude. My issue is that based on past performance, I suspect that the result will be only marginally better than taking that money and lighting it on fire in the middle of the Common.

I worry that this windfall will mostly get burnt up on things that either increase operating costs or just go down the drain with no long term benefit to costs or quality. And then, slowly but steadily, the movement of people like me out of the state will increase, and long-term revenue will go down.

Maybe this time it really will be different. I hope so, because there's a lot I like about living here, and will be open to seeing that. And if so, I hope I get to cash another big check in five years, and give nine fricking percent of that to the state.

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And good for you, your business probably helped lots of people along the way.

Just like MA estate tax (which finally got some improvements) I suspect people don’t really comprehend the impact of the tax until they file their returns.

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Just like MA estate tax (which finally got some improvements) I suspect people don’t really comprehend the impact of the tax until they file their returns.

Maybe people who randomly inherit $1M from the spinster aunt who lived like a pauper on a $85K income, or the contractor with 50 trucks who drops dead at 52 from a lifetime of hard living.

But my experience is that once you're in the club, or clearly maybe on the waiting list to get in, you start becoming pretty aware of this stuff. There's a huge industry of specialists who do it, and the accountants/law firms/etc. that you work with will make the introductions.

The moment that tax passed, I was aware of it and knew that if and when my ship came in, it would cost me. In the end, I wasn't willing to move to Miami on a whim just in case something maybe happened and put another hefty chunk of cash in my pocket.

If I had perfect knowledge or much higher certainty of a deal, or already had a winter place/social network down there I could make my primary base, or if the tax hit was even bigger, then I might have chosen differently.

Look, if you told me I could move to Yellowknife and pay 0% taxes, I wouldn't, because the whole point of making a $#@!load of money is to be able to live the way you want, and I choose to live in an expensive area because I like living here, and taxes are just another expense.

But if I spend January and February in Miami and decide I really love it down there, then Boston may well become a place I rent a hotel room for a month or two a year. That's why it's way too early for people to declare victory on this.

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The point would be to pass generational wealth to one’s heirs.

What was the name of your business and who bought it?

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Why didn't I do it? Because I didn't know anything was going to happen until weeks/days before, and I didn't have experience or a pre-existing pad in any of these other places I could easily relocate to.

It was a ballot measure. Do you ever vote?

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He’s talking about the sale of his business. Deals like that are sporadic and random and until the check is cashed never guaranteed.

No need to be rude especially when you’re way off base.

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Are you claiming the business sale was a Suprise? Where did he say that? T

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.

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He is referring to the law going into effect.

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Robo is correct here. I was extremely well aware of the law.

It was the business sale that was in the category of “maybe next quarter, maybe next year, maybe never.”

I wasn’t going to uproot my and my partner’s lives on a whim for the possibility to save somewhere between $0-$2M. I’m more interested in maximizing happiness than maximizing post-tax income.

But there is a good chance I’ll look harder at this over the next few years. I’ll spend some time in some possible other places, and there’s a long list of places now with excellent QoL and much lower taxes. Will I pull the trigger? I don’t know. If the next deal is huge, maybe I don’t care, like the finance/tech guys who live in NY/CA.

But if moving to another state saved you so much on taxes that you could get a really nice house for free (effectively), are you saying you wouldn’t consider it?

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If you were a devoted follower of the 45th President of the United States leaving Massachusetts because of taxes on the rich would make perfect sense. After all he's still claiming that businesses are fleeing New York in droves because he is being prosecuted and he's the richest person New York has ever known in his own humble opinion. He changed his residence to Florida.

And we know how he feels about actual rich people paying taxes.

Bloomberg News

It was, after all, late last year when he told attendees at a Mar-a-Lago event, “You’re rich as hell. ... We’re gonna give you tax cuts.” Soon after, he told Fox News he was interested in another round of tax breaks for corporations.

MSNBC

At a rally in New Jersey, the presumptive Republican nominee boasted about an apparent across-the-board tax cut, which would include “big” new tax breaks for the “upper class” and the “business class.”
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could be good news for the MBTA and schools

But have you considered the advantages of building like a new horse barn in Pepperell because some state Rep slipped it in the budget and Mariano made the "make it rain" gesture

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They budgeted “very conservatively” for the 2023 amount.

This is only a ruse to disguise the progressive state income tax Liberals have always wanted. A stain on Massachusetts’ progressive cred.

You’ll notice the amount of revenue overall is falling and the number of people leaving the state is high. It will be a matter of time before a million is dropped down to $500k and the pretext of MBTA and education is dropped.

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It's not easy to drop the ceiling to 500K, at least under current SJC jurisprudence.

When Mass amended its constitution to permit an income tax, it did so in a way the SJC has always held to effectively require a flat tax.

That's why this tax required a ballot initiative to enact, and previous ballot initiatives (as recently as mid-aughts, IIRC?) to remove the flat tax provision failed decisively. So this one was written very narrowly, setting both a very high floor and earmarking the uses of the funds for two very politically popular causes.

And even with that, it only passed by 3%, in what is generally viewed as a very liberal state in a very liberal year. Changing any aspect of it would require the same process, so it's not obvious that would be an easy win. It might even galvanize opposition to start a repeal campaign, so my guess is that supporters are going to leave this alone as long as it is paying.

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When revenue is hurting, it will be even easier.

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Then that entire finance team needs to be fired if the variance is that large. What else are they missing in their financial "analysis" that could benefit the whole of the Commonwealth?

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Rich people have ways of hiding their money so that it isn't obvious until you really shake the tree.

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You can’t hide income with a flat tax, which MA has, but you knew that already……

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You can’t hide income with a flat tax, which MA has, but you knew that already……

Horsefeathers. Flat tax refers to the taxation rate on reported income. The Heritage Foundation and its klingons claim that this removes the incentive to hide income, which is laughably absurd.

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Your use of ‘hide’ when you’re really saying tax evasions is an interesting choice. Let me ask you this question - Why would anyone that’s hiding their true income all of a sudden declare everything now that there’s an additional tax? Answer - they wouldn’t. If you’re ok with breaking the law at risk of jail time, methinks you’re not going to all of a sudden change your ways because the tax rate increased for you.

In a progressive tax system, hiding income is a lot easier and usually legal due to the complexities of the tax law. You literally have to perjure yourself in a flat tax system.

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Pro athletes aside, I’d say almost everybody who ever makes >$1M has huge swings. I came close to negative income in 2020, and my normal annual income the past ten years was low 6 figures.

Even biglaw partners and bankers tend to have most of their comp tied to deal flow which waxes and wanes a lot with the macro economy. We’ve seen this forever with capital gains tax revenue, which swings massively from year to year. And my guess is that the vast majority of the $M tax is coming from cap gains.

And guess what, we came into 2023 with seven out of six economists predicting a recession, and they kept saying “any minute now…” until they finally admitted early this year that their crystal balls were busted.

So really, if you were a DoR forecaster, the smart bet until well into 2023 would have been a conservative one. If we are smart, the vast majority of this money should be used to reduce debt, or stashed in T bills for famine years.

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Good PR department.

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