BOSTON GLOBE: Don’t call it the ‘millionaires’ tax: Inflation is raising the bar on who pays Massachusetts’ high-earner levy

By Matt Stout

This piece originally appeared in the Boston Globe on June 4, 2025.

Maybe people should start calling it the “$1.1 millionaires” tax.

Two-plus years after Massachusetts residents voted to more heavily tax earnings over $1 million, inflation is steadily raising the bar on who actually needs to pay the extra levy each year.

As written, the constitutional amendment applies a 4 percent surtax on annual income “in excess” of $1 million. But the measure also included a trigger linking that seven-figure threshold to any changes in the cost of living, meaning the amount someone has to earn to hit the tax is increasing.

State officials have twice adjusted that floor, so tax-filers now have to make over $1.08 million to begin paying the extra levy, according to state data. Given the inflation-driven increases are not a bug, but a feature, of the surtax, the floor is destined to continue to rise, adding another dimension to an already unpredictable revenue source.

The changes also have another impact: A surtax widely dubbed the “millionaires tax” at the 2022 ballot box may no longer apply to all Massachusetts millionaires.

“It always felt like a misnomer,” Peter Enrich, legal counsel for the campaign that successfully pushed the ballot question, said of the “millionaires tax” label. “The idea was to only impose the tax on what are very high incomes, people who have ample resources.”

While “millionaires tax” has dominated public discussion, surtax proponents and many state officials often use the term “Fair Share” as shorthand for the 4 percentage surtax, which is applied on top of the state’s 5 percent income tax. There were about 27,000 Mass. taxpayers with annual incomes over $1 million in 2022, according to Raise Up Massachusetts, which pushed for the surtax.

In less than three years, the levy has generated billions of dollars in revenue for transportation and education initiatives, from fare-free buses to making community college tuition-free for residents. The surtax also sits at the center of a still-raging debate over what’s truly driving some people to leave Massachusetts and settle elsewhere.

That the tax is constantly changing was an important, if little-discussed, feature of the measure during the campaign. Advocates behind the proposal included language requiring that the $1 million threshold be adjusted each year based on inflationary changes using the “same method used for federal income tax brackets.”

Both policy and political considerations drove the decision to include that automatic trigger.Proponents wanted to avoid relying on the Legislature to adjust the bar over time, as it’s done for other taxes. Lawmakers in 2023, for example, raised the threshold on the state’s estate tax to $2 million from $1 million, which at that point was the lowest in the country.

Surtax backers also wanted to defuse arguments on the campaign trail that a proposal pitched as a tax on high earners would gradually hit more — and relatively speaking, less-wealthy — residents. In other words: A $1 million salary today will not go as far30 years from now.

Yet, after inflation surged following the COVID-19 pandemic, the floor has risen quickly. It jumped to $1.053 million for 2024 before increasing again to $1.083 million for this year, according to calculations by the state’s Department of Revenue.

So far, the changes haven’t slowed what the state actually collected. Massachusetts raked in $2.4 billion from the surtax last fiscal year, setting up lawmakers to spend roughly $1.3 billion in so-called extra revenue. (House and Senate leaders still need to reconcile their different, earmark-laden versions of the bill.)

This fiscal year, state officials said, the surtax has already produced $2.6 billion in revenue — with likely more still to come — probably creating another surplus for lawmakers to spend next spring.

Legislators have gradually included more spending of surtax revenue into their annual spending plans, while treading carefully not to overpromise on a volatile revenue source. Capital gains, for example, can fluctuate as the stock market ebbs and flows, thus helping sap — or supercharge — what the surtax delivers to the state’s coffers.

“We had no experience” on projecting this type of tax, said Senator Michael Rodrigues, the Senate’s budget chief. “We had wildly disparate estimates from the economists on what that would raise. . . . One thing we do not want to happen is for us to overestimate.”

Raising the actual threshold of who has to pay, however, likely won’t skew state officials’ projections too much, experts said.

Each time the floor inches upward, the change likely would affect a few hundred people out of the tens of thousands who are subjected to the surtax, said Evan Horowitz, executive director of Tuft University’s Center for State Policy Analysis. And, he said, the actual revenue that those marginal millionaires’ income bring in would be relatively small, given that the 4 percent surtax applies only to each dollar above the $1 million-plus threshold, rather than the taxpayer’s entireearnings.

“The projections are built around those people earning $20 million, $50 million. And for them, [the inflation adjustment] is a rounding error,” said Horowitz, who said the surtax is well-designed to capture those it’s intended to hit. “We need more taxes that are properly indexed — so they don’t get distorted over time.”

That feature offers little comfort to those who say the tax is a hit on the state’s ability to keep high-wealth residents.

The Massachusetts Society of Certified Public Accountants released survey results last year that show two-thirds of their members reported at least one client who had moved away from Massachusetts in 2023, the first year that the income tax surcharge on high earners was in effect. Ninety percent said they had other clients who were considering leaving the state.

While the surtax is raking in billions of dollars now, it actually is “masking a much bigger problem that this tax is creating,” said Chris Anderson, president of the Massachusetts High Technology Council and a cofounder of the Mass Opportunity Alliance.

“The inflation factor on this thing, I call it irrelevant,” he said.

Others argue that most people leaving Massachusetts aren’t millionaires. Rather, it’s mostly working-age adults, according to a study from the Massachusetts Budget and Policy Center, a progressive think tank.

Anderson said there’s another issue, too: State spending continues to balloon.

The annual budget House and Senate leaders are negotiating would hike spending by more than 6 percent compared to the budget Governor Maura Healey signed last year. At that level, the budget would grow by nearly 50 percent from just seven years ago.

“This [surtax] is one source of revenue, like many other sources, driving what might be available for spending,” Anderson said. That it’s tied to inflation, he argued, “does absolutely nothing to stem the problem.”