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Don’t think you’ll ever pay the millionaire’s tax? Wait a decade or two
Much ink has been spilled chronicling the laments of a relatively small number of people selling homes and businesses who, as things stand today, might get ensnared by Question 1.
But the local media, in its coverage of the hyperbolic debate over the proposed, additional 4 percent tax on annual earnings and gains over $1 million, has almost completely missed the much bigger issue with the proposal, which will go before voters in next month’s state elections.
The number of people who wind up paying the tax due to a one-time windfall, such as empty nesters selling homes after two or three decades, while tiny to begin with, is only destined steadily grow due to a quirk in the proposed ballot question.
The culprit? The federal index the new law would use to keep up with inflation, historically outstripped by the growth in both Massachusetts home prices and incomes, according to a 2018 Pioneer Institute report by Greg Sullivan, the think tank’s now retired research chief, and a former state inspector general.
In fact, Boston area home prices over the decades have risen at more than triple the rate of the federal Consumer Price Index for All Urban Consumers.
The result: By 2027, as many as half of all long-time home sellers in 13 different communities will get hit by the tax, mostly in high-income communities that have seen the biggest gains in home prices: Cambridge, Somerville, Brookline, Needham, Wellesley, Weston, Lexington, Belmont, Sherborn, Dover, Hingham, Winchester, Newton.
By 2041, that group will have expanded beyond this well-off core to include towns like Watertown, Waltham, Newburyport, Natick, Melrose, Duxbury and Reading.
Fast forward to 2047, and the average home seller in 52 different suburbs and towns, including Braintree, Boston, Hull and Winthrop will see some of their real estate gains siphoned off by the tax, according to the Pioneer report.
Disclaimer: I worked as a freelancer for Pioneer on Sullivan’s 2018 report, writing out the text. That said, the ideas and stats were solely his. I have not done any work for Pioneer since.
I am ambivalent about the proposed tax, also known as the Fair Share Amendment, the goal of which is to raise money to address our crumbling transportation system and keep our schools moving forward, among other worthy causes.
Yet we are governed by one of the least transparent state legislatures in the country, with a long line of corruption scandals involving State House leaders.
Now we are about to pump even more money into the system. What could go wrong there?
Ok, so the law’s not perfect. So, where do we go from here?
The Pioneer study has at least one flaw. While it accounts for the $250,000 capital gains exemption that single homeowners can use, the analysis does not include the impact of the $500,000 exemption available to couples filing jointly.
But the projections in the report are now roughly five years old. Since then, the pace of home price appreciation has accelerated dramatically, with the median price in Massachusetts up more than 20 percent over the past two years.
Photo by www.alanharder.ca/
So, what’s there to do going forward? The latest polls show the millionaire’s tax is heavily favored to pass. And amending it after the fact to, say, change the inflation index to better match Massachusetts realities, could be difficult. In fact, it might even require passing an amendment to the state constitution.
But there’s another way to head off some of the bracket creep built into the law and protect long-time homeowners, and it doesn’t require fiddling with the state constitution.
And that’s to dramatically increase the amount of housing that gets built in the Boston area and across the state to level off the dramatic growth in home prices.
That would prevent some long-time homeowners from getting swept up by the millionaire’s tax, while helping everyone from renters to first-time buyers to empty nesters as well.
Quick hits:
Likely story: “Healey believes the region is pitching in on Mass. and Cass” Boston Globe/Vennochi
Trumpie NH general losing millions in ads: “Republican leadership bails on New Hampshire, Don Bolduc keeps door knocking” Boston Herald
Really? Baker blows campaign cash on Trump loving sheriff: “Baker-linked super PAC bets big on Hodgson” CommonWealth Magazine
Pivot to the economy and pray for a miracle: “Democrats fear the midterm map is slipping away” Washington Post
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