I usually analyze and write about the business environment in foreign countries as my firm considers investing in new single-country equity ETFs or deciding whether to maintain our existing positions there. In this report, I will do the same by analyzing a disastrous millionaires’ tax of 75% on income over €1 million imposed in France in 2013 and 2014. The tax showed the regulatory instability of the French tax code and the city’s unsuitability for assuming the mantle of the European financial center from London after Brexit cut London from the European Union in June 2016. Financial institutions – where a few employees make more than €1 million (one million euros) per year – do not want to work in areas where such political and tax risks exist.
But the stimulus for writing the report was much closer to home. The report focuses on the constitutional amendment in my home state of Massachusetts that is called the ‘Fair Share Amendment’ – primarily by its supporters – or the Millionaires’ Tax by its supporters and opponents. The amendment will be presented as Question 1 on the voter ballots during the midterm elections on November 8, 2022.
The proposal is to amend the Massachusetts constitution to add a tax of 4% on the portion of annual taxable income over $1,000,000 (one million dollars). In other words, the Question 1 proposal would increase the state income tax by 4% from 5% to 9% - a hefty increase of 80% - on the portions of income above $1 million. According to the amendment authors, the new tax would fund public education, public colleges, universities, and infrastructure maintenance, including roads, bridges, and public transportation. However, if the amendment is adopted, Massachusetts would plummet in terms of its income tax friendliness from 18th place in the nation to 45th or 6th from the bottom (see the second column in Chart 1 below).
The definition of “fair” in the “Fair Share Amendment” is also very peculiar and subjective. Is the amendment fair compared to only five states with higher maximum income taxes – California, Hawaii, New Jersey, Oregon, and Minnesota? It does not sound anywhere close to ‘fair’ to raise the tax rate to 9.00%, or 69% above the 50-state average of 5.33%. The current tax of 5.00% seems to be much fairer than the proposed tax of 9.00% compared to the average state income taxes in the other 49 states.
In the report, I will show that the tax is likely to negatively impact the business environment in Massachusetts, making companies and financially-successful people leave for states with low income taxes. If/when companies leave Massachusetts, ordinary people would suffer. They would have fewer jobs, and the state would provide fewer services because it would collect less in overall tax revenues. Increasing the income tax rate means the state risks collecting less overall tax revenues, including corporate taxes. By the way, income taxes may also drop after financially-successful individuals leave the state. The state also risks losing billions in philanthropic donations from financially-successful individuals that have been making Massachusetts a great place to live.
The Massachusetts professional teams are likely to weaken. Fewer professional sports people would choose to play in a high-tax environment. Also, in my opinion, it is unfair to impose so-called ‘fair’ taxes on professional athletes whose professional careers last just several years, during which they make most of the money from their working careers. Some would need the money to take care of their sports injuries for years, if not for the rest of their lives. Finally, it is unclear where the additional tax revenues would go and what specific schools, roads, and initiatives they will finance.
In my opinion, it is not right to worsen the state business environment and the lives and careers of so many people in Massachusetts just to give the teacher and other trade union bosses that financed the amendment rollout money for their narrow interests, such as increasing their own salaries or pursuing their own agendas.
It is especially unclear why the tax increase is needed when the state has a 2022 income tax surplus of almost $3 billion that it has to return to taxpayers.
To read the full report in PDF format, please Click Here
Please let me know if you have any questions about BBIS or the firm’s investment strategies, would like to be on our publication distribution list, or want to invest some funds with BBIS. Please also let me know if you are interested to learn more about BBIS' country investment analysis consulting services.
Thank you.
Best regards,
Vitaly Veksler, CFA
CEO & Portfolio Manager
Beyond Borders Investment Strategies, LLC
vveksler@bbistrategies.com
But the stimulus for writing the report was much closer to home. The report focuses on the constitutional amendment in my home state of Massachusetts that is called the ‘Fair Share Amendment’ – primarily by its supporters – or the Millionaires’ Tax by its supporters and opponents. The amendment will be presented as Question 1 on the voter ballots during the midterm elections on November 8, 2022.
The proposal is to amend the Massachusetts constitution to add a tax of 4% on the portion of annual taxable income over $1,000,000 (one million dollars). In other words, the Question 1 proposal would increase the state income tax by 4% from 5% to 9% - a hefty increase of 80% - on the portions of income above $1 million. According to the amendment authors, the new tax would fund public education, public colleges, universities, and infrastructure maintenance, including roads, bridges, and public transportation. However, if the amendment is adopted, Massachusetts would plummet in terms of its income tax friendliness from 18th place in the nation to 45th or 6th from the bottom (see the second column in Chart 1 below).
The definition of “fair” in the “Fair Share Amendment” is also very peculiar and subjective. Is the amendment fair compared to only five states with higher maximum income taxes – California, Hawaii, New Jersey, Oregon, and Minnesota? It does not sound anywhere close to ‘fair’ to raise the tax rate to 9.00%, or 69% above the 50-state average of 5.33%. The current tax of 5.00% seems to be much fairer than the proposed tax of 9.00% compared to the average state income taxes in the other 49 states.
In the report, I will show that the tax is likely to negatively impact the business environment in Massachusetts, making companies and financially-successful people leave for states with low income taxes. If/when companies leave Massachusetts, ordinary people would suffer. They would have fewer jobs, and the state would provide fewer services because it would collect less in overall tax revenues. Increasing the income tax rate means the state risks collecting less overall tax revenues, including corporate taxes. By the way, income taxes may also drop after financially-successful individuals leave the state. The state also risks losing billions in philanthropic donations from financially-successful individuals that have been making Massachusetts a great place to live.
The Massachusetts professional teams are likely to weaken. Fewer professional sports people would choose to play in a high-tax environment. Also, in my opinion, it is unfair to impose so-called ‘fair’ taxes on professional athletes whose professional careers last just several years, during which they make most of the money from their working careers. Some would need the money to take care of their sports injuries for years, if not for the rest of their lives. Finally, it is unclear where the additional tax revenues would go and what specific schools, roads, and initiatives they will finance.
In my opinion, it is not right to worsen the state business environment and the lives and careers of so many people in Massachusetts just to give the teacher and other trade union bosses that financed the amendment rollout money for their narrow interests, such as increasing their own salaries or pursuing their own agendas.
It is especially unclear why the tax increase is needed when the state has a 2022 income tax surplus of almost $3 billion that it has to return to taxpayers.
To read the full report in PDF format, please Click Here
Please let me know if you have any questions about BBIS or the firm’s investment strategies, would like to be on our publication distribution list, or want to invest some funds with BBIS. Please also let me know if you are interested to learn more about BBIS' country investment analysis consulting services.
Thank you.
Best regards,
Vitaly Veksler, CFA
CEO & Portfolio Manager
Beyond Borders Investment Strategies, LLC
vveksler@bbistrategies.com
Chart 1. The US States Ranked By Income Taxes – 2022
Source: World Population Review.
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