Question 5 effectively proposes more frequent tax refunds
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A question on the Nov. 3 ballot in "Taxachusetts" would chip away at state coffers, promising more frequent tax refunds based on a 40-year-old law.
Why it matters: This proposal could, at best, put some much-needed money in residents' pockets and, at worst, complicate efforts to fund the services that make Massachusetts a liberal beacon.
- Opponents claim this will hamper efforts to fund affordable housing, schools and safety net programs, while proponents say it holds Beacon Hill accountable for its high spending.
Catch up quick: The question revolves around a 1986 law that makes Massachusetts return money to taxpayers when the state's tax revenues are higher than its self-imposed cap.
- The cap is based on how much tax revenue the state collected in 1986, weighed against the last three years of wage and salary growth.
- Mass. calculates the new cap based on the prior year's cap.
- The state can also "bank" years where it collected less tax revenue, factoring that and tax cuts to offset the final number, per the Tufts University Center for State Policy Analysis. (TLDR; it's a lot of math.)
Threat level: Over the years, the cap and the actual state revenue drifted further and further apart, effectively setting the goalpost farther for tax refunds.
- That's largely why taxpayers have only gotten these refunds twice: once in 1987 and another in 2022.
State of play: The proposal would base the formula on how much the state collected instead of last year's cap, while nixing the option to "bank" bad years or factor in tax cuts.
- It would also add revenue from the "millionaire's tax," which was meant to target high earners to fund schools and transportation investments, to the equation. (It's currently not factored in 62F calculations.)
- If approved, this would take effect July 1, the start of fiscal 2028.
By the numbers: An independent study by the CSPA projects the proposed formula would get taxpayers eight or nine refunds over the next 20 years, two to four times as many as if the formula didn't change.
- Those refunds would translate to $200–$250 a year in taxpayers' pockets, or $1.1–$1.3 billion a year in lost state tax revenue, per the CSPA's projections.
The fine print: One unintended consequence is that the way the law is worded means the tax refund is counted as "negative revenue" in the next year's total.
- As a result, next year's total revenue could look lower, and could set a lower bar for the refunds to get triggered the following year.
- That's because the proposed formula would compare the net total tax revenue (after refunds go out) to the total tax revenue collected the next year.
Reality check: Explaining how this works and all of the variables that may or may not come into play would take an accounting seminar.
- And the Legislature will likely change the language of the ballot measure if it is approved by voters.