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After State House loss, business leaders will need to regroup on higher-earners tax fight

Trade groups weigh legal challenges and multimillion-dollar ballot campaign

Business groups will need to regroup after this week's setback at the State House.
Business groups will need to regroup after this week's setback at the State House.David L. Ryan/Globe Staff

The business community will need to regroup now that the Legislature has overwhelmingly approved the so-called “millionaires tax” again.

The setback is a stark contrast to the stunning legal victory that five major business groups scored in 2018 when the state Supreme Judicial Court sidelined efforts to impose this new income tax surcharge on annual earnings above $1 million.

A legal victory will be much harder to come by now that the “Fair Share Amendment” has returned. A bruising ballot battle, pitting big business against big labor, seems more likely. The union-funded Raise Up Massachusetts coalition could end up facing off against a newly formed nonprofit created to be Raise Up’s antagonist, dubbed Partnership for Massachusetts’ Future, among other business-backed foes.

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The Fair Share proposal has followed a tortuous path. Its supporters need nothing less than a change in the state constitution. This is a laborious process that requires two votes by the Legislature in consecutive sessions and another one by the people of Massachusetts. The Legislature took that second vote on Wednesday, priming Fair Share for the ballot in November 2022.

Ostensibly, the surcharge would raise about $2 billion a year, to be used for education and transportation purposes, by imposing a higher income tax on nearly 20,000 married couples and individual taxpayers who make more than $1 million a year: 9 percent on all earnings above that threshold, with the standard 5 percent tax on income below it.

Critics say the surcharge won’t raise anywhere near that amount. They doubt it will bind the Legislature to use the money for the seemingly noble causes of public schools, roads, and trains. And they claim it will hurt the state’s economic competitiveness, maybe even resurrecting the dreaded “Taxachusetts” label.

The advocacy has been intense in recent days and weeks. The Massachusetts Competitive Partnership argued that the rise of remote work during the pandemic makes high-cost areas more vulnerable to job losses if taxes go up. The Massachusetts Taxpayers Foundation cautioned against state budget writers relying on high-earner taxes, because of the potential volatility of that revenue stream. And the Greater Boston Chamber of Commerce warned about enshrining such a public policy in the constitution, essentially setting it in stone and leaving little flexibility for change.

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At the very least, business lobbyists had hoped lawmakers would put off this vote until the fall, or early next year. Better, the thinking went, to wait and see how hard-hit businesses recover from the COVID-19 pandemic and how the $5 billion-plus in federal aid that the state has received gets divvied up. There was even talk of reaching another “Grand Bargain,” like the one the business groups struck with labor and community activists in 2018.

But it was not meant to be. The Fair Share proponents — led by the Raise Up coalition of labor, community, and religious groups — simply had too much momentum.

Raise Up had tried to advance the ballot question as a citizens’ petition the last time around. It turned out to be a fatal legal mistake. The Supreme Judicial Court essentially ruled that the proponents could not bundle three seemingly unrelated items: taxing high earners, spending money on education, and also spending on transportation.

The tax on higher earners still looks the same. But there’s one key change: It’s being submitted as a proposal from state lawmakers, not the citizenry. For that reason, supporters and critics alike say the “relatedness” question that stymied it the last time around probably will not apply.

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That’s not to say a legal challenge has been ruled out. Appellate lawyer Kevin Martin, whose team at Goodwin Procter successfully championed the business community three years ago before the SJC, confirmed Goodwin has been hired by the Massachusetts High Technology Council to consider possible legal options.

Chris Anderson, president of Mass. High Tech, said it’s too soon to know what kind of legal avenues the business groups can pursue. In the meantime, he is corralling companies to sign an open letter opposing new business taxes (about 170 companies are listed so far) and is helping a related effort to launch a new nonprofit called the Partnership for Massachusetts’ Future. Anderson said the Partnership — not to be confused with the Mass. Competitive Partnership, the group of high-powered chief executives — is designed to bring together like-minded organizations interested in the state’s competitiveness and pose a counterpoint to the Raise Up umbrella organization; the new Partnership’s president is Stephen Fantone, the chief executive of Optikos in Wakefield.

Meanwhile, Pioneer Institute executive director Jim Stergios has put his free-market-oriented think tank to work, with repeated reports this year emphasizing Fair Share’s potential economic downsides. He estimates as many as 14,000 of the likely affected taxpayers are actually owners of small businesses whose profits are taxed at the individual level and would be subject to the new surcharge.

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Voters may want to punish people like Jeff Bezos and Elon Musk, especially after the ProPublica report this week on how those billionaire bigwigs minimized their income taxes. But Stergios said it’s the local small business owners who would be most affected by Fair Share.

Jared Walczak of the D.C.-based Tax Foundation adds that 45 percent of all pass-through income in Massachusetts — primarily income from small businesses — is reported on returns of $1 million or more, making Fair Share a significant new tax on employers. (Eight other states, he said, have single-rate income taxes while 32 have graduated ones, with California leading by assessing as much as 13.3 percent for top earners.)

Fair Share proponents such as state Senator Jason Lewis make a valid point that will inevitably resonate. The economic inequities inherent in this state’s economy have only grown over time. The gaps between the haves and have-nots have only widened.

Will Fair Share solve that problem? Probably not. But business leaders will likely need a strong counterargument to win over enough voters when the long-discussed tax on top earners finally gets on the ballot. Odds are they won’t have the SJC’s help this time.


Jon Chesto can be reached at jon.chesto@globe.com. Follow him on Twitter @jonchesto.