TaxWatch: In the midterm elections, voters in California and Massachusetts must decide if millionaires should pay more tax — which way would you vote?

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In the run up to the midterm elections where costs are top of mind for many people, voters in Massachusetts and California are being asked to decide if millionaires in their states should taxed more to help pay for large-scale public goals like improved infrastructure and widespread electric vehicle purchases.

A ‘yes’ vote in Massachusetts’ Question 1 would add a 4% surtax for households making at least $1 million. The Bay State has long had a flat-rate income tax, now at 5%. The money would be tied to education and infrastructure spending.

Two different Massachusetts polls, both conducted earlier this month, show voters supporting Question 1’s extra 4% tax.

A ‘yes’ vote in California’s Proposition 30 puts a 1.75% surtax on income above $2 million. The state already has a top rate of 13.3%, the steepest rate for a state income-tax code. The revenue on the 20-year tax would go towards zero emission vehicle purchase incentives for consumers and businesses. It would also bring in more money for charging stations and wildfire prevention.

California polling shows a tightening race. While one poll from early October showed 49% of voters backing Proposition 30 versus 37% in opposition, a more recent poll showed more than half (52%) of people likely voting against the measure with 41% in support.

A ‘yes’ vote in Massachusetts’ Question 1 would add a 4% surtax for households making at least $1 million.

Does that means tax hikes for the rich from two reliably Democratic states? Not so fast, say observers. Polling suggests Democrats up and down the ballot may be playing defense to many Republican candidates. Besides, forecasting the outcomes on tax-related ballot measures is a tricky business.

Such votes are not easy to predict. “Income-tax changes have been 50/50 in past years,” said Jared Walczak, vice president of state projects for the right-leaning Tax Foundation. “Ballot results often surprise outside observers.”

Two years before Massachusetts’ Question 1, voters in Illinois — another Blue-state bastion — rejected the chance to turn the state’s flat income-tax rate into a graduated scale, Walczak noted.

But Michael Mazerov, senior fellow at the left-leaning Center on Budget and Policy Priorities, cautions people from applying what happened in Illinois to California and Massachusetts in 2022. “What it tells us is all politics are local,” he said.

When Arizona voters narrowly elected Joe Biden as U.S. president over Donald Trump during the 2020 election, they also voted in favor of an extra 3.5% tax on Arizona residents making at least $250,000 a year, and married couples making $500,000 — and they did so by a wider margin than the presidential vote. That extra tax revenue would have gone to boost teacher salaries, but the provision did not survive a legal challenge.

A ‘yes’ vote in California’s Proposition 30 would put a 1.75% surtax on income above $2 million.

Still, Mazerov noted, “When it come to state tax increases and spending priorities and so on, these things are very much driven by local needs and perceptions.” The argument that higher taxes cause people and businesses to flee “is really grossly exaggerated by people who oppose raising taxes,” he added. “It’s really a very marginal phenomenon.”

There are a number of other current tax-related state ballot votes. In Arizona, for example, Proposition 132 would make it harder for a tax proposal to gain approval, needing 60% of the vote.

But after the Biden administration and Congressional Democrats unsuccessfully pressed several ways to levy more tax from high earners, the California and Massachusetts votes firmly keep the focus on the question of higher taxes for the rich.

Another reason politics is local, especially when it comes to voters deciding on tax issues. Not all states finances are in the same boat: Some state budgets are flush with revenue, while 21 states have reduced state income tax rates since last year, Walczak noted.

California

California recently voted to ban the sale of new gas-powered cars in 2035 and already is home to the country’s highest state income-tax rate for top earners.

So Proposition 30’s battle lines may offer some surprise twists. Lyft LYFT, -0.75% is a major backer that’s poured millions into the campaign to pass the measure, state records show. Other endorsements come from the California Democratic Party, an array of environmental groups, the American Lung Association, organized labor and more.

Opponents to Proposition 30 include the California Teachers Association, a slew of chambers of commerce, the California Republican Party, and California Gov. Gavin Newsom — a high-profile Democrat who’s recently proposed a windfall tax on oil companies. California drivers typically pay the country’s highest gas prices.

Newsom and opponents say the ballot measure — which would help funnel money towards the electric-vehicle market — paves the way for Lyft and other rideshare companies to electrify their fleets using taxpayer money.

‘I don’t know why we’re doing a big tax increase in California when we’re running record surpluses.’

— California Gov. Gavin Newsom speaking on CNBC

By 2030, California rules say at least 90% of Lyft and Uber’s UBER, -1.15% miles have to come from EVs. The companies have pledged to completely use zero-emissions vehicles by then.

In one advertisement, Newsom said Proposition 30 was “being advertised as a climate initiative but in reality it was devised by a single corporation to funnel state income taxes to benefit their company.” In a CNBC interview last month, Newsom said it was a “terrible initiative” with “terrible timing.”

“I don’t know why we’re doing a big tax increase in California when we’re running record surpluses,” Newsom said, emphasizing he recently signed laws devoting more than $50 billion for climate-related initiatives.

‘Ridesharing drivers will be eligible just like all Californians, but they won’t receive any type of priority or preference.’

— ‘Yes on 30’ spokesman Steven Maviglio

Adding the 1.75% “millionaire” tax to the 13.3% top bracket takes the top rate to 15.05%. Changes on California’s 1.1% payroll taxes beginning in 2024 could also push the top income-tax rate to 16.15%, Walczak said.

“I’m fortunate enough to be impacted by this tax and happy to pay it to help turn back the clock on this existential threat,” said Logan Green, co-founder and CEO, at Lyft.

Environmental groups approached Lyft last year for support on a ballot measure to make EVs more affordable and “we saw an opportunity to put real resources behind smart policy,” Green wrote in a blog post.

There’s no money specially set for Lyft or the ridesharing industry, he noted. “Ridesharing drivers will be eligible just like all Californians, but they won’t receive any type of priority or preference.”

Lyft referred comment to “Yes on 30” spokesman Steven Maviglio. There’s “no way” the state’s residents can get to the 2035 goal of no new gas-powered vehicles “without massive, dramatic measures to do that,” he said, rejecting the argument that higher taxes on the rich would scare off high earners.

“Lyft benefits because everybody in California benefits. There’s not a single line in the ballot that directs any money to Lyft,” Maviglio said.

Meanwhile, Uber UBER, -1.15% “was not involved in the drafting of Prop 30, and we have no association with the campaign,” a company spokesperson told MarketWatch. “It’s our belief that addressing climate change is a team sport. That is why we have committed to working with the state of California and industry partners to make the green transition as fast as possible.”

Rivian RIVN, -0.06%, the electric car maker, endorses the ballot measure, according to Yes on 30’s website. A spokesperson declined to comment.

Massachusetts

Massachusetts voters have rejected the chance to create a graduated state income-tax code five times, most recently in 1994.

Supporters hope this time’s different. “Question 1 is an opportunity to improve our public schools, make college and vocational education more accessible and fix our crumbling roads and bridges,” said Andrew Farnitano, senior spokesman for Fair Share for Massachusetts, the ballot committee supporting the measure. Fair Share for Massachusetts is a coalition of backers including organized labor, social-service providers, public health and environmental groups.

The chance at improvement is being done “in a way that makes our tax system fairer,” he said.

Money for education and infrastructure are “very noble endeavors” but there’s no assurance that’s where the extra tax revenue would go, said Dan Cence, spokesman for the coalition against Question 1, including businesses and business groups.

State coffers are filled with surplus cash and Cence said one worry was chasing away high earners and businesses in the state’s biotech industry. “They can do their research anywhere they want …We don’t want to kill the golden goose that’s biotech in Massachusetts,” Cence said, noting the jump from a 5% rate to 9% is an 80% increase in the size of a state income tax bill.

The tax could reap $1.3 billion in revenue next year if it goes on the books, according to Tufts University’s Center for State Policy Analysis. In the view of researchers, “aggressive tax avoidance would be a bigger challenge than an exodus of high earners.”

It’s going to be “difficult” to completely stick with the pledge to spend the money on education and infrastructure, researchers said. “Even accounting for the imperfect effect of earmarks, the millionaires tax would still generate substantial increases in a number of high-priority spending areas — potentially reducing economic and racial inequality.”

This article was originally published by Marketwatch.com. Read the original article here.

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