On Tuesday, November 10, 2020, the House began debate on H.5150, the state budget for Fiscal Year 2021. Rep. Connolly filed amendment #675 to raise the tax rate on unearned investment income. The amendment also included significant new exemptions for low- and moderate-income seniors and persons with disabilities. Posted below are Rep. Connolly's draft remarks in support of the amendment, as delivered to a full formal/remote emergency session of the House with Speaker pro Tempore Pat Haddad presiding.
Thank you, Madam Speaker, and through you to the Members:
I rise in support of Amendment #675, which would raise the tax rate on unearned income, from 5% to 9%.
By “unearned income,” we mean long term capital gains, dividends, and interest income. This sort of income overwhelmingly goes to the wealthiest households in our Commonwealth. By making this simple change, we can raise approximately $1.7 billion in new, progressive revenue on an annual basis.
In what remains of Fiscal Year 2021, this additional revenue would allow us to stop the cuts at the MBTA and to boost funding for our regional transit authorities. It would allow us to guarantee housing stability, and it would give us the means to end homelessness in our Commonwealth. It would also enable us to live up to the commitments we proudly made earlier this session with the Student Opportunity Act, and it would further enable us to support our public colleges and universities and to expand access to the full range of health care, childcare, and social services, programs that are made all the more critical in this time of worsening pandemic, economic hardship, and legal threat to the Affordable Care Act.
This Amendment also includes significant new tax exemptions for certain seniors and people with disabilities living on fixed incomes. According to a recent analysis by the Massachusetts Budget and Policy Center, the new exemptions included in this proposal would ensure that this effort to raise new revenue would not result in any meaningful tax increase for most low- and moderate-income seniors and disabled persons – and in fact, this proposal would deliver a tax reduction to many such taxpayers.
In addition, this amendment would allow us to replenish the Rainy Day fund, and it includes language that would account for the relative volatility of unearned income as a source of tax revenue. This amendment includes language that would allow us to budget for an additional $500 million in new revenue for the General Fund, while routing the anticipated remaining additional revenue to the Rainy Day fund. So, even if investment income fluctuates, this proposal is structured in a way that provides us with hundreds of millions of dollars in additional revenue that we can count on even in downtimes, along with a mechanism to ensure that when markets are going strong, we are replenishing the Rainy Day fund.
Now, it has to be emphasized — we in Massachusetts tax "unearned income" like capital gains, dividends, and interest at the same rate that we tax “earned income” like wages and salaries. This means the person working a minimum wage job is subject to the same Massachusetts income tax rate as the person with a billion dollar investment portfolio. That is inherently inequitable. It’s truly a “flat tax,” something Republicans have been trying to achieve on the federal level for decades. And it is completely incompatible with any notion of economic or racial justice.
According to MassBudget: Because unearned income flows overwhelmingly to wealthy, white households, raising additional revenue from an increased tax on unearned income would support economic and racial justice. Taxing unearned income at 9 percent would only meaningfully impact the effective tax rate for the wealthiest 1% of households in Massachusetts. These households all have incomes above $776,000 a year, and as a group, they average over $3 million a year in income. Under this proposal, these highest-income households would see an increase in their effective tax rate of just 1.3%. And even with this increase, the effective tax rate on these highest-income households would still be well below the effective rates paid by other Massachusetts households.
That’s an important point — it’s worth noting that the households that would pay significantly more to the Commonwealth if this amendment is adopted are the same households that recently received massive tax cuts on the federal level through the 2017 Tax Cuts and Jobs Act. On average, the wealthiest one percent of Massachusetts taxpayers will see an annual federal tax cut from the TCJA worth over $60,000 this year. According to MassBudget, this is yet another reason why these few, very fortunate households are well-positioned to absorb higher state-level taxes.
Mr. Speaker, this proposal has the support of the 157 organizations and individuals involved in the Raise Up Massachusetts coalition, including scores of community groups, labor groups, faith-based groups, activists and organizers. It also has the support of Massachusetts AFL-CIO and the Massachusetts Teachers Association. And there is ample public polling data that shows residents support the idea of asking our wealthiest households to pay more of their fair share in taxes. That’s a concept that has been routinely supported by our Senators Elizabeth Warren and Ed Markey and by President-elect Joe Biden.
I filed this amendment because raising new, progressive revenue is core to my service in the legislature. Across my Cambridge and Somerville district, we have concerns with the state of the MBTA. We see homelessness continuing to rise and know the challenges of housing affordability. Across our Commonwealth, our schools need investments, and too many of our bridges are structurally deficient.
Back in 2015, the Raise Up Coalition collected over 150,000 signatures to advance a citizens’ initiative for a constitutional amendment to add an additional 4% tax on annual incomes over a million dollars in Massachusetts. After working tirelessly for years to bring this proposal forward — the Associated Industries of Massachusetts (AIM), the Mass. High Technology Council, and other business groups went to court to get that ballot question removed on very narrow grounds. Today's proposal would largely target the same kinds of income that the Fair Share Amendment would target — and it would allow us to access this new revenue right now, during the COVID-19 pandemic, when support for these vital programs will be the difference between life and death for our most vulnerable residents.
I ask my colleagues to join me in support of this amendment, and Mr. Speaker, when a vote is taken, I ask that it be taken by a call of the Yays and Nays. Thank you.