Banned in Boston: a graduated income tax.

WBUR ran a poll asking about the MBTA. They asked how people rated the MBTA (78% fair or poor; or what it’s worth, I’d rate it “fair”) and how often it was a reliable means to get around (61% “most of the time” or “always”). Nearly everyone (85%) thinks that fixing the T should be a priority, and most blame the outdated system rather than management (66%, although Republicans are more likely to blame management).

They then asked people if they would support additional taxes or fees to help fund the T. 48% said they would. 48% said they would not. (Those who supported it split between somewhat and strongly support, although opposition is skewed towards strongly oppose.) The party crosstabs are somewhat interesting: even 30% of Republicans would support new taxes or fees, more than half of those strongly.

Most of the poll’s crosstabs don’t show anything particularly interesting, and I think the pollsters made a mistake by not asking people how they typically commuted, as that would have been a very interesting crosstab (I talked to the pollster and it may be forthcoming). However, what stands out is how the spread in responses varies. I expected it to vary by geography: people in Boston or “inner core” areas would support more taxes, or be more likely to blame an old system rather than wasteful management. But that’s not the case. Instead, the responses to these questions varies by income and education, which I assume are well-correlated.

For instance:

Q: “Which of the following do you think is most responsible for the issues this winter?”
A1: Old system and Maintenance
A2: Poor management

     Overall  under 25k  25-75k  75-150k   150k+
A1:     66        53      65       72       74
A2:     17        22      17       16       10

Wealthy voters are far more likely to blame the old system than poor management. For low-income respondents, they’re only a bit more than twice as likely to blame the system than the people. For higher income respondents, they’re seven times as likely. There are similar trends when you ask about funding shortfalls:

Q: What is responsible for the system’s financial shortfall?
A1: Not enough legislative funding
A2: Waste and mismanagement
A3: Prioritizing expansion over maintenance

     Overall  under 25k  25-75k  75-150k   150k+
A1:      30       19       25       35      39
A2:      36       41       36       39      32

A3:      23       31       29       22      18

Here, a high-income respondent is twice as likely to blame the legislature than a low-income one.

Q: Would you support paying more taxes/fees for better transit?
A1: Strongly/somewhat support?
A2: Strongly/somewhat oppose?
     Overall  under 25k  25-75k  75-150k   150k+

A1:     48        40       44       50      63
A2:     48        51       55       48      35

Here’s where I think it’s interesting. Wealthier respondents are far more likely to support more taxation. By a nearly two-to-one margin, people making more than $150,000 a year support more taxes, while people making less than half that much are against it. Herein lies the problem: how do you tax the people who make more—and are willing to pay more—without raising taxes on people struggling to get by.

The obvious answer is a progressive income tax. Massachusetts is one of few states without one. The problem with changing the tax structure is that progressive taxation is explicitly forbidden by the state constitution. Oh.

(Update: here’s a good primer on the state income tax with more up-to-date numbers.)

Right now, the standard deduction of $8800 for a family makes the tax structure is slightly progressive. I’ve calculated the tax paid under the current system and a proposed progressive system for various incomes (5.15% after the standard deduction). On the left are the median incomes for each quintile of earners in Massachusetts (from 2006, but the numbers haven’t changed too much since then). On the right are what would happen if you raised the standard deduction to 10,000 and had the following graduated rates: 4% to $25000, 6% to $75000, 8% to $150,000 and 10% on income above $150,000.

Income       Tax       Rate     New Tax    New Rate
$20,000      $577      2.8%     $400       2.0%
$48,000      $2019     4.2%     $1580      3.3%
$75,000      $3409     4.5%     $3200      4.3%
$105,000     $4954     4.7%     $5600      5.3%

$175,000     $8559     4.9%     $11700     6.7%
Total/Avg*   $19518    4.2%*    $22480     4.3%*
(* Average of five rates here, not the average rate paid for the total)

Taxpayers in the lowest two quintiles of earners would see dramatic decreases in their taxes: $200 to $500 (25-35%), which, for lower earners, is likely to be spent, boosting the economy. The middle quintile would also see a small tax break: someone earning $75,000 would get a $200 tax break (5% decrease). Upper earners would see their rates increase, but the change would not be more than $1000 until it was well in to six figures (a million dollar earner would see their tax rate increase from 5.1 to 9.4% and pay an extra $43,000, but I think they’ll still get by).

For the Commonwealth, it would mean new revenue. Based on just these numbers, there would be an increase of 15% from income taxes. But the math is much more complicated than that involving calculus I’m not about to do here since the long tail of high income earners would pay more while the decreases at the lower end of the scale are more minimal, so the revenue increase would likely be a bit higher. So, most Massachusetts residents would get a tax break, and the Commonwealth would have more money to improve services for everyone. And according to the survey, higher income residents would be willing to pay more. It’s a win-win-win, but it can’t be implemented without amending the constitution.

There are two ways to get this on the ballot. One involves a majority of state legislators and is probably a non-starter: Beacon Hill types are notably averse to doing, well, anything. The other way is for 3% of Massachusetts voters would need to sign an initiative petition, and then 25% of two consecutive legislatures would have to approve it. 25% of two consecutive legislatures might actually have a chance. Then it would go to the voters.

The last attempt to make this change in 1994 (a Republican wave year) failed by a wide margin, but an attempt to end the income tax all together in 2008 failed by a wider margin. The political hurdles would be large, but it is clear that the state needs more money to invest, and it is clear that higher earners are willing to pay more taxes. Convincing everyone to vote for this—even if it would be a tax cut for most—would be the hardest part.

And to the naysayers who crow that it will drive away jobs, look at Minnesota. There, the governor raised the top scale of the income tax and turned a deficit in to a budget surplus, which is being reinvested in schools and infrastructure and targeted tax breaks for the working poor. Too bad that it’s a well-educated, progressive state that happens to get a lot of snow: does that sound familiar?

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