The Massachusetts Fair Share Tax is a Winner

Photo by Dinero777 via Pixabay

In November 2022, Massachusetts voters passed ballot question No. 1, the  Fair Share Constitutional Amendment that would impose an additional 4% tax on taxable income above $1 million.The money raised from this so-called “Millionaire’s Tax” would be used exclusively for public education and transportation infrastructure. 

The Fair Share Tax was estimated to bring in approximately $1.2 billion in revenue in the first year, FY2024. Ten months into the fiscal year, that total exceeded $1.8 billion!

It is estimated that 0.6% of taxpayers are affected by the Fair Share Amendment. 

Fair Share Highlights in the FY 2025 Budget

For FY 2024, budget funding from the 4% additional tax (surtax) totaled $1 billion, split almost evenly between transportation ($476.5 million) and education ($510 million). Funding increased to $1.3 billion for FY 2025 and a greater percentage of those funds was allocated to education ($761.5 million) than transportation ($538.5 million).

Here are some Fair Share funding highlights included in the FY 2025 budget.

Education

• $170 million to fund free meal programs at all Massachusetts public schools;

• $175 million for the Commonwealth Cares for Children early education and care programs;

• $117.5 million to provide free community college access across the state;

• $80 million increase in financial aid for Massachusetts residents attending state universities.

Transportation 

• $250 million for the Commonwealth Transportation Fund (CTF);

• $110 million for Regional Transit Authorities throughout the state, including funding for  fare-free service;

• $45 million in supplemental roads and bridges aid for municipalities;

• $4 million for increased mobility options for seniors and others in need.

The CTF is a primary funding vehicle for the Massachusetts Bay Transportation Authority (MBTA) and the entire $250 million will prop up its operating support and debt service. An additional $106 million is allocated for MBTA capital investments, worker safety reserves, and the MBTA Academy.

Though Boston and its environs get the lion’s share of the transportation funding revenue under the new Amendment, Fair Share makes a $100 million pot of money available to all 351 municipalities each year. The first $50 million is distributed via the Chapter 90 program, using a formula based on local road mileage, population, and employment. The second $50 million is based on a city or town’s road mileage alone.

Shutesbury received $51,490 from the Fair Share Tax for FY 2025 in addition to its Chapter 90 amount of $33,105.

Concerns About Fair Share Ease

In the days and weeks leading up to the November 2022 election,   opponents of the Fair Share Amendment voiced warnings that the wealthiest residents would leave the state if the ballot question passed. Nearly two years later, those dire predictions have not come to pass. The Bay State’s population increased by .27% from 2022 to 2023 and the first 12 months of the Amendment’s existence brought $2.2 billion into the state’s coffers. 

Another concern raised was that the tax would significantly reduce the savings of homeowners, small business owners, and retirees who sell their assets in a one-time transaction. However, it's important to remember that the tax only applies to any income exceeding $1 million, not the entire transaction amount.

Why Are Appropriations Not Equal to the Revenues Generated by Fair Share?

Despite the probability that Fair Share raised $2 billion in FY 2024, only $1.3 billion made it into the budget. Why is that the case, and where did the overage go?

Since the state budget process is a long one, reason dictates that budget appropriations work will begin before all revenues are received. $1.3 billion was likely agreed upon based on estimates, not the fiscal year’s total Fair Share revenues.

This explanation from the Massachusetts Budget and Policy Center brings some clarity:

Revenue raised by the surtax is first deposited into the Education and Transportation Fund (E&T Fund). Lawmakers set a spending cap on the amount that can be spent from the E&T Fund each Fiscal Year (see next section). Surtax money that exceeds that cap, “the excess,” will be transferred from the E&T Fund to one of the other two funds. Fifteen percent of the “excess” gets deposited into the “Education and Transportation Reserve Fund” to offer stability if surtax revenue decreases, such as an economic downturn. Eighty-five percent of the “excess” gets transferred to the “Education and Transportation Innovation and Capital Fund,” which supports one-time spending like the construction of a new rail line or vocational school. 

The article explains that imposing caps on long-term spending can help smooth out revenue fluctuations over time, making it easier to make funding decisions for long-term projects. During lean years, excess funds can be used for projects that have already been planned. Eventually, the spending cap will be determined based on the Fair Share revenues received over a previous 10-year period.

The Fair Share Amendment is successfully providing financial support to two previously underfunded areas essential to our state's economy and society. The best part is that it has achieved this without burdening low- and average-income residents' finances; a definite win-win.