Voters in One State Approve a Tax on Millionaires

Voters in states around the nation sent mixed messages Tuesday when it came to hiking taxes on people with higher incomes.

Massachusetts voters approved a measure to raise funding for education and transportation by amending the state’s constitution to create an additional 4% tax for people making more than $1 million a year. Coloradans also showed a willingness to tax wealthier residents, approving a measure that will reduce income tax deductions for households with incomes over $300,000. The added revenue will go to pay for free school meals for students in the state.

However, in California, voters rejected a proposal to raise taxes on those earning more than $2 million to fund incentives for electric vehicle purchases, building electric vehicle charging stations and combating wildfires. That measure was backed in part by the app-based ride-booking giant Lyft, which is looking to shift drivers to EVs to comply with state mandates.

The mixed fates for the measures make it hard to decipher any national trend, said Richard Auxier, senior policy associate at the Urban-Brookings Tax Policy Center. 

“Trying to craft a narrative about voters being pro- or anti-tax is very tough with voters going in different directions in different states,” he said. “The details of these questions matter and so do the politics and dynamics in the states, so you cannot paint with a really broad brush.”

Still, liberal supporters of Massachusetts’ tax hike, which opponents branded as a "millionaires tax" during the campaign, hailed its passage, saying it will make the state’s tax system fairer.

With Question 1’s approval, an additional 4% levy will be tacked onto income tax for earnings over $1 million.That would be in addition to the state’s flat, 5% income tax rate, for a total of 9%. But for earnings under $1 million, only the 5% rate would apply.

“Amending the state's constitution to tax the very rich is literally historic,” the Yes on 1 For a Fairer Massachusetts campaign said in a tweet, shortly after the Associated Press called the election Wednesday afternoon.

Opponents, though, argued the measure would fall disproportionately on retirees and small business owners because large one-time gains such as the proceeds from selling a home or a business would be taxed at the higher rate.

Raising taxes on the wealthy, though, has long been a priority for progressives in the state, Auxier said. “So I'm not surprised that they were able to get over the hurdle,” he said.

Meanwhile, anti-hunger advocates in Colorado and nationally hailed the passage of Proposition FF in that state.

Under the measure, about 114,000 joint and single tax filers, or about 5% of those filing in Colorado, will see their state tax deductions decreased, according to The Denver Post. Those with incomes of $300,000 to $499,000 will see their tax burden rise by more than $800 annually and those making $1 million or more in annual income will see an increase, on average, of more than $1,150, the paper reported.

“Families won big as voters in Colorado moved to ensure that all students will have access to healthy school meals,” Nancy Brown, chief executive of the American Heart Association, said in a press release.

“Studies show that providing kids with a healthy breakfast and lunch makes them more attentive and engaged in the classroom, leading to better grades, higher attendance rates and higher graduation rates – all of which set them up to live longer, healthier lives,” she said.

The measure is particularly important with the end of a pandemic-era U.S. Department of Agriculture waiver in June that had allowed all schools to get federal reimbursements to offer free meals to all students, and not just those in poverty. 

The Colorado measure will provide free meals to students, regardless of their families’ income.

“State officials nationwide should follow the lead of Colorado and other states including California, Maine and Vermont by enacting laws to provide school meals to all students at no charge,” Brown said.

Wesley Tharpe, deputy director of state policy research at the left-leaning Center on Budget and Policy Priorities, also said voters sent mixed messages in the midterms when it came to taxes. 

“There were a lot of very important tax measures on the ballot all across the country. They didn't all break in one direction, because voters have a very nuanced view towards tax policy,” he said.

But, particularly the Massachusetts measure, “really highlights the fact that when there is a clear case made for why revenue is important, voters are willing to support efforts that do raise taxes in targeted ways to support the sorts of things that families or communities need,” he said.

Katherine Loughead, senior policy analyst at the center-right Tax Foundation’s Center for State Tax Policy, suggested there were signs that voters were not enthusiastic about raising their taxes at a time when record inflation is driving up prices for a range of basic goods. 

“Voters across party lines demonstrated they still care about tax competitiveness, and many remain skeptical of tax increases, even when those tax increases fall primarily on high earners,” she said.

For example, the measure California voters rejected, Proposition 30, would have raised an estimated $3.5 billion to $5 billion annually in additional state revenue by increasing taxes on personal income above $2 million a year by 1.75%. 

Environmental groups supported the proposal, which was largely financed by Lyft. But other progressives opposed it, including Gov. Gavin Newsom, despite his support for EVs.

In part, Auxier said, the measure failed because the state already has one of the nation’s most progressive tax structures.

Loughead noted that even though Colorado voters approved raising taxes to fund school meals, they also approved Proposition 121, by nearly a two-to-one margin, reducing the state income tax rate from 4.55% to 4.4% for both individuals and corporations. 

The measure will reduce the money the state collects for its general fund by $412.6 million in the next budget year, a 2.4% reduction, according to The Denver Post. 

Supporters argued that the state already collects more taxes than it needs because of a limit on how much Colorado’s revenues can grow under what’s known as the Taxpayer’s Bill of Rights, or TABOR. And while Colorado has become increasingly Democratic in recent years, voters there tend to remain skeptical of higher taxes.

In Massachusetts, Loughead noted that voters elected Democrat Maura Healey as governor by a nearly two-to-one margin, but only a slim majority favored raising taxes on millionaires.