So Massachusetts Governor Deval Patrick has proposed a $1.9 billion spending plan, about which I’ll say more late. The short version is that I think it’s good overall, but it only partially restores many of the Romney cuts in social services. What is needed is more revenue. It’s really not hard to find revenues once you look at the one percent. Here’s how income breaks down in Massachusetts (from pdf):
Right now, the Massachusetts personal income tax is 5.25% regardless of income. Despite jokes about the People’s Republic of Massachusetts, we actually have a regressive tax system, although it’s not about bad as some other states:
So what would happen if we created a ten percent bracket that started at the bottom of the one percentile, $780,000? (note: this wouldn’t raise rates on the first $780,000 at all. Someone who ears $780,001 would pay 5.25% on $780,000 and ten percent on the remaining one dollar). I assume that the one percent would still shield about twenty percent of their income from the personal income tax (i.e., capital gains, incorporation of some assets, etc.) which what happens currently. Right now, the one percent, as a group, pays 4.3% of its income in personal income taxes even though the rate is 5.25%, so with a ten percent rate, this would yield an effective eight percent tax (again, only on every dollar above $780,000).
With those assumptions, I find that overall income tax revenues would increase about fourteen percent. In 2011, Massachusetts raised $11.576 billion from the income tax, so we’re looking at somewhere in the neighborhood of an additional $1.5 billion (and this doesn’t include people over 65). Even if that’s an overestimate, I still think we could generate $1 billion annually. That’s not nothing. From the perspective of the one percenters, the average one percenter would pay an additional $40,000 per year out of an average income of $2.16 million (the increase would be from $93,224 to $144,580). Obviously, not all one percent households would be hit equally, but that’s always the case whenever changes are made to the tax code, but this is still manageable–they’ll get by somehow.
Oddly enough, no one has proposed something like this. Go figure.