Biz Groups File Challenge with SJC in Bid to Derail Income Surtax

Proponents of an income surtax on high earners face a new challenge as opponents, led by large business groups, are going to court in a bid to derail a constitutional amendment calling for a 4 percent surtax on annual household income above $1 million per year.

A complaint filed with the Supreme Judicial Court Tuesday by officials from the Massachusetts High Technology Council, Massachusetts Taxpayers Foundation and Associated Industries of Massachusetts alleges the proposal itself is unconstitutional and violates three requirements and restrictions on the content of ballot questions featured in Article 48 of the state Constitution.

“It is really important to understand that this lawsuit is not about whether creating a new graduated income tax is good public policy or bad public policy, it is about the way that it is being done, which we find to be so clearly flawed and unconstitutional that it is alarming,” Chris Anderson, president of the high tech council and former chairman of the state Board of Education, said in a statement.

Another plaintiff, Dan O’Connell, served in former Gov. Deval Patrick’s administration and now leads the Massachusetts Competitive Partnership. O’Connell is concerned the measure will cause “irreparable damage” to the state’s economy by discouraging employers from growing locally, according to the complaint.

Supporters of the union-backed measure say it will protect most taxpayers from seeing any tax increase while generating roughly $2 billion in revenue that they say would be invested in education and transportation, areas of spending that are a priority for many lawmakers as well as the business community.

In response to the complaint, the Raise Up Coalition alleged that high tech council member companies “have received at least $144 million in tax breaks and other incentives from the State of Massachusetts and local communities, and the average annual compensation of chief executives whose companies received public benefits is $12.3 million.

“Instead of supporting the Fair Share Amendment and the benefits that a well-educated workforce and a more reliable transportation system will create for their employees, their businesses, and our entire economy, these wealthy corporate executives are fighting the people’s right to vote, just to save themselves a small amount of money on their own personal income taxes,” said Cindy Rowe, director of the Jewish Alliance for Law and Social Action.

The challenge to the proposal was expected and its filing ensures that the high court will be the next battleground over the surtax.

The complaint, prepared by Kevin Martin of Goodwin Procter, challenges Attorney General Maura Healey’s certification of the petition as ballot eligible and seeks to enjoin Secretary of State William Galvin from placing the measure on the ballot in November 2018.

The plaintiffs allege that the constitutional amendment impermissibly violates a constitutional provision requiring that initiative petitions only address “related” or “mutually dependent” subjects.  The proposal, the plaintiffs say, combines unrelated subjects by establishing a graduated income tax structure and also mandating that funds raised through the tax increase only be spent on education and transportation.

“An important reason for this restriction is to prevent ‘logrolling,’ the process by which an unpopular provision is joined in a single initiative petition with a popular provision, making it more likely that both will pass,” the complaint said.  “Yet logrolling is plainly why the Challenged Initiative combines a graduated income tax – an idea that has been rejected five times by Massachusetts voters – with increased spending on two currently-popular, but unrelated, causes.”

The challenge also asks the court to toss the question on the grounds that it allegedly improperly allocates funding, allowing a “radical decentralization of fiscal policy away from the Legislature” and setting a precedent that “will set the stage for future initiatives from a range of interest groups proposing constitutional amendments segregating funds for their preferred causes, or raising tax rates on some groups and lowering taxes on others.”

Article 48 bans “specific appropriations” by initiative petition, according to the complaint, and the state’s highest court in 1937 excluded a petition that sought to designate funds “only” for specific purposes.

The complaint also cited a 1937 high court ruling to back up its claim that “the Court should hold that initiative petitions cannot be used to take control over revenue generation away from the Legislature via a tax set in the Constitution.”

The income surtax proposal has received the two consecutive affirmative votes required from the Democrat-controlled Legislature to reach the 2018 ballot.

Republican lawmakers resisted the measure as it moved though the Legislature; Republican Gov. Charlie Baker has opted against taking a position on it.

The Raise Up Coalition expressed confidence that the amendment will withstand the legal challenge. The legal team defending the amendment includes Kate Cook, head of the government law practice group at Sugarman, Rogers, Barshak & Cohen and the former chief legal counsel for Gov. Patrick; Lisa Goodheart, partner at Sugarman Rogers and former president of the Boston Bar Association, and Northeastern University Law Professor Peter Enrich.