Business Advocates Gear Up for Legal Fight Against ‘Millionaires Tax’ Proposal

A proposal that would impose more taxes on the rich to pay for education and transportation is expected to be an easy sell to voters.

That’s why the state’s most powerful business groups want to stop the initiative before it gets that far. They’re working on a legal challenge to scuttle the so-called millionaires tax.

The Massachusetts High Technology Council just sent out a letter to its roughly 150 members, seeking contributions of $10,000 to $25,000. The surcharge, council president Christopher Anderson wrote, could cause irreparable harm to the state’s innovation economy.

Other influential business groups — such as the Massachusetts Taxpayers Foundation, Associated Industries of Massachusetts, and the Massachusetts Competitive Partnership — also oppose the labor-backed surcharge. Among their strategies: filing a lawsuit later this year that challenges its constitutionality.

If the measure appears on the ballot in November 2018 and voters approve it, the taxation rate for personal income above $1 million would increase by 4 percentage points. Assuming the current income tax rate of 5.1 percent remains in place, an individual would pay the standard rate on all income up to $1 million, and then pay a 9.1 percent rate for earnings above that threshold.

But the union-funded “Fair Share Amendment” still needs to clear an important hurdle: a vote by the state lawmakers to put the tax question before voters next year.

The surcharge would be created through a constitutional amendment, which requires two roll call votes from the Legislature. Lawmakers have overwhelmingly approved it once, in 2016. They could take their second vote as soon as June 14.

The business groups’ legal strategy is just starting to take shape. One likely plan of attack: challenging language that would set aside funds for education and transportation. They argue that constitutional amendments can’t appropriate funds for specific uses. They also may also claim that the referendum question is too broad.

The millionaires tax is projected to raise nearly $2 billion a year. But critics say there’s no guarantee the new revenue will result in an equivalent increase in education and transportation funding. Lawmakers could use the new money to pay for preexisting line items in the state budget, which would then free up that money for other causes, such as health care.
Then there’s the risk of building a budget around a potentially volatile revenue stream — income taxes collected from the wealthy often vary from year to year.

James Rooney, chief executive of the Greater Boston Chamber of Commerce whose group only recently took an official stance against the surcharge, said he expects the chamber will research the volatility issue and whether the surcharge would unfairly hurt businesses owned by a single individual.

Supporters of the additional tax cite studies that show a relatively small number of wealthy people move out of state because of tax policies. Rooney, however, still worries about the economic impact.

“We need to be mindful of the mobility of people and businesses in this economy,” he said, pointing to General Electric’s decision to relocate from Connecticut to Boston last year.

Business opposition to a tax on the rich, however, is not unanimous. The left-leaning Alliance for Business Leadership, for example, is trying to build support for the surcharge.

“You would be hard pressed to find any business group in Greater Boston that hasn’t said investment in education and transportation is a priority,” said Jesse Mermell, the alliance’s president. “It’s perfectly reasonable for the most fortunate among us to pay slightly more to make sure that economic growth happens.”

Surcharge supporters say they’re on solid legal ground. They point to the state’s gas tax, whose proceeds are set aside for transportation purposes.

A successful court challenge would be far less expensive than a campaign to defeat a ballot question, which could cost millions.

While the Massachusetts High Technology Council won’t say how much it hopes to raise, the Globe reported last fall that the group’s goal was in the $400,000 range.

In comparison, the Raise Up Massachusetts ballot committee spent nearly $600,000 in the past two years to get the millionaires tax this far. Most of that money came from union sources, including Services Employees International Union affiliates, and the Massachusetts Teachers Association.

The opponents have not yet created a ballot committee, so their expenses are not public. Mark Gallagher, executive vice president at the high-tech group, said his side has to disclose its spending only when it begins to try to directly influence voters. Legal work doesn’t count, he said.

“It’s easy to see how this would be appealing to voters,” said Eileen McAnneny, president of the Massachusetts Taxpayers Foundation. “The vast majority of them are not subject to the new tax. . . . You just don’t want to hurt the underpinnings of our economy with a tax that will hit investors, innovators and entrepreneurs.”