How to lose $6 million a day

Financial Planners


opinion

This fall, Bay State voters passed a so-called billionaire tax that promises a much-needed boost to the economy. This is why it may send waves of cash out of state and curtail local resources instead.


Illustrated by Mark Macho

pictureI’m worried about rin Calvo-Bacci. At age 52, the youngest of three daughters now in high school, he finally hired his CB Stuffer, a specialty wholesale chocolate maker in Swampscott, to provide nest eggs when he was ready to retire. I plan to sell it. But that nest egg now seems too small, thanks to the passage of the Fair Share Amendment (FSA), also known as the Billionaire’s Tax, in his November. As a result, she says, “her five-year plan to get out of Massachusetts must be made.”

She’s hardly alone. A business owner recently told me that billionaire taxes were a big reason he made Florida his primary residence last year. Already unnerved by . Meanwhile, statewide wealth advisers and business his consultants say many of their clients are seriously considering moving across the Massachusetts border. Some say they will move for sure, while others have ordered investigations in preparation for fleeing after years of no current leases or other obligations. With the package’s late-session failure, it seems the tipping point has finally arrived. Susan Kaplan of Newtons Kaplan Financial Services said: “Don’t hold charity here. Don’t start business here. Don’t live in this state.”

It is too early to guess how many residents will follow that advice. Very few people don’t. Still, the campaign is over and political issues are moot. The act was completed and his 4% surcharge on annual income over $1 million was stamped into the state constitution. State taxation will be a little more progressive. Education and transportation need to be funded a little more. But fallout remains relevant. Not only because it affects the amount of new tax revenue the FSA can actually collect, but if current and future high-income earners and entrepreneurs avoid the Bay State altogether, there could be knock-on effects on Massachusetts’ economy. This is because of the nature of

It’s not hard to imagine why. We have good reason to lament the current extreme wealth inequalities, but they exist. This means that a very small number of households contribute disproportionately to consumer spending, business expansion and employment. Restaurants, clothing stores, dry his cleaners, cleaning services, and many others rely on them. The same is true for other undertakings, such as charities and philanthropy. For example, Calvo-Bacci’s company recently partnered with elementary schools in Medford and Redding for a fundraiser. “Not only are state income taxes being exported to other areas, [but] These people are creating jobs and doing philanthropic work,” said Bruce Perseley, chairman of the Mount Vernon Company, a real estate investment firm. “Who are the major donors to hospitals and educational institutions? (who has seen the downside of moving elsewhere) went a step further, stating that more than half of their charitable donations are already in Florida.”

When a small percentage of high-income earners and entrepreneurs leave the state, move their business investments elsewhere, or choose another state to launch their startups in, the impact quickly stacks and spreads. The state’s Gross Domestic Product (GDP) is projected to decline by about $6 billion by the end of 2025, according to Business-Friendly Tax Foundation analysis.

Maybe, as some claim, these rich families, especially the 2,000 or so families who regularly report annual incomes of $5 million or more, are just bluffing and eventually will remain in that position. That’s clearly something voters are willing to bet on. “This is a big bet against very few people,” says a consultant at one of his businesses. He has his fingers crossed, but I can’t help but wonder if the new tax will do more harm than good.

If you scroll through the Massachusetts Financial Advisor website, you can’t miss all the posts discussing tax evasion tactics in light of the recently added billionaire tax.

to scroll Visit Massachusetts tax planners and financial advisors websites. You can’t miss all the recently added posts discussing tax evasion tactics considering billionaire tax. These companies knew there was demand for new strategies. After all, they were hearing it from their clients throughout the campaign. And it’s not just a handful, they say. We hear from many customers. lot.

No doubt, high-income earners will find ways to ease the new tax burden. Heck, they already have. Jody King, vice president and director of wealth planning at the Fiduciary Trust Company, said some of her clients will have their funds out of the traditional bank by the end of 2022 to pay the resulting taxes before the new law takes effect. It states that it converted from an IRA to a Roth IRA on the spot. Other experts are doing the same.

Small business owners are also moving quickly. “They are already talking to tax accountants and legal experts so they won’t be taxed. The Massachusetts Retailers Association shares the same concerns, says president John Hurst: “80% of our members are pass-through businesses, so personal income and business income are exactly the same.” is.”

All of this chatter includes an explicit option to kick them out of Massachusetts. How many actually show up is a bit of a Rorschach test question. And to me, that amorphous ink blot looks a bit like former Governor Charlie Baker.

A month after the FSA passed, despite his objections, Baker announced that he would start his new job as president of the National Collegiate Athletic Association (NCAA) after completing his second term as governor. He reportedly has no intention of really bringing his talents to Indianapolis, where the organization’s sophisticated campus is located. It would be a proof-of-concept of what it claims: high-income people are anchored firmly by family, community ties, business networks, and love for all of them. Provided by Massachusetts. After all, “location still really matters,” says Phineas Baxandor, policy director for the Massachusetts Center for Budgetary Policy, which helps the FSA.

That’s the theory behind the Tufts University analysis, which estimates that the state will lose no more than 500 wealthy families from the additional tax. But the pro-business tax foundation in Washington, D.C. puts the figure at over 1,700 for him, and it’s not hard to imagine Baker ending up being one of them. For example, if the NCAA paid Baker his $3 million salary, the same amount that his predecessor paid him, maintaining a Massachusetts residency would cost Baker his $230,000 in state taxes. means that you are obligated to pay This is $80,000 more than he was before the FSA, and $133,000 more each year than he would pay in Indiana if he moved. On top of that, he’s taxed at 9% on investments and other earnings, so he loads up his fireplace with a lot of cash each year.

Former Boston mayor Marty Walsh, who is based in Toronto and has a job as president of the NHL Players Association, faces a similar decision. So did Patriots owner Robert Kraft, who could easily claim his new condo in Palm Beach, Florida as his primary residence and save a lot of money. There are a lot of them in the state, but if they weren’t in the state, the whole of Massachusetts civic life would be similarly compromised. It will cause a further outflow of wealth from

According to her, this new tax has led to rumors spreading across the country that so-called Taxachusetts is not a wise place to start or expand a business. The businessman I spoke to who moved to Florida last year agreed. “Put yourself in the shoes of an entrepreneur,” he says. “Would you like to incorporate in Massachusetts? No.”

According to one financial adviser, the new tax has sparked rumors nationwide that so-called Taxachusetts is not a wise place to start or expand a business.

It’s easy argue that the Taxachusetts label is not reality, but merely a twisted perception of the state’s outraged wealth owners. If they believe that there is, they will act as if it is, regardless of whether their point of view conforms to objective reality.

So far, according to my conversations, so many of them have exited this election cycle convinced they’ve screwed up. Multiple wealthy bay starters, who did not want to be named, told me the new tax was “punitive.”

That feeling is heightened by the seeming lack of need for income. Massachusetts’ tax revenues were so high last year that before the FSA’s ink had dried, the state mailed out refund checks to residents. It was just months after a series of failed tax reforms advocated by then-Governor Baker.

Like many issues in recent years, from Obamacare to illegal immigration, the bitterness high-income people feel about the FSA seems familiar to political commentators. For some, the opposition may be tribal and complaints based on their beliefs rather than objective observations. I just took it as confirmation that I didn’t want to be around them.

Relieving other tax burdens could go a long way in alleviating that suffering. Current Governor Maura Healy has proposed a new round of tax reform, including two of his tax reforms to please the wealthy. He raises the estate tax threshold from $1 million to $3 million and lowers short-term capital gains taxes from 12% to 5%.

Beacon Hill’s initial response seems mixed at best. Likewise, the Democrat Congressman doesn’t seem to be in a hurry to get involved in adjusting his FSA itself. For example, some residents are exempt from her one-time effects if they sell their homes or, as in the case of Calvo-Bacci, sell their businesses. House Ways and Means Chairman Aaron Mickleewicz said it would “take years to know the impact” of the new tax, and wants time to evaluate changes to the FSA before endorsing them. He doesn’t believe the intention was to “go after the former billionaires” to sell homes and small businesses, but now that voters have gone through it, “we need to get it done.” There is,” he says.

But those affected by the new tax and future high-income earners may choose not to live through it. I’m watching it with my two daughters who go to school. Those in Tennessee “don’t come back,” she says. A Rhode Island rep said, “We’ve been working through the numbers with us about living in Massachusetts. The cost is too high.”

First published in the April 2023 print edition under the headline “How to Lose $6 Million in a Day.”





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