BOSTON — A Wednesday report from the Massachusetts Budget and Policy Center argues that small businesses would benefit if voters approve the Fair Share Amendment in November 2022.
The ballot question would levy an additional 4 percent tax on annual personal income above $1 million, raising an estimated $2 billion per year in additional revenue, to be invested in public education and transportation.
The state currently taxes all personal income at a 5 percent rate. Under the Fair Share Amendment, someone making more than $1 million per year would pay the 5 percent rate for the first $1 million and a 9 percent rate on income above $1 million.
Phineas Baxandall, a senior analyst and advocacy director for MassBudget, authored two reports published Wednesday on the MassBudget website. One report makes suggestions for tax policy changes that would support small businesses, and the other suggests that the Fair Share Amendment would help small businesses, which tend to rely on public education and transportation systems.
“Big businesses can sometimes create their own training pipelines and child care centers and transportation shuttles and the like,” Baxandall said. “They sometimes can create their own infrastructure, but small business needs to rely wholly on the schools, the local transit systems and other public infrastructure that commerce requires for businesses to thrive.”
There is no widely accepted definition for a small business, Baxandall said. While “pass-through” entities, such as sole proprietorships, sometimes are assumed to be small businesses, Baxandall said, that description concerns the way that a business files its taxes, rather than the amount of revenue it generates. Fidelity Investments, for instance, is a multibillion-dollar company that is an S corporation, a kind of pass-through entity.
Because of the ambiguity, Baxandall said, “big business lobbies are able to pass special public favors and subsidies for themselves by taking on the mantle of small business.”
But, he identifies three areas of tax policy where changes can target improving small businesses’ viability.
Each year, every municipality in the state can choose whether to adopt a “small commercial entity property tax exemption,” which exempts up to 10 percent of a commercial or industrial property from taxation if the property is valued at $1 million or less and has an average employment of 10 people or fewer.
For the current fiscal year, only 14 of the 351 cities and towns in Massachusetts approved an exemption. Most that approved exemptions were smaller towns, including New Ashford in Berkshire County.
Baxandall also points to the unemployment insurance tax system, which disproportionately burdens small businesses, as an area for reform. Massachusetts employers currently contribute payroll taxes on the first $15,000 that each worker earns. As a result, a company where workers are paid an average of $30,000 pays taxes on a greater proportion of its payroll than a company where workers are paid an average of $150,000.
Since small businesses tend to have lower-wage employees, Baxandall said, the state could make the system friendlier to small businesses by increasing the $15,000 base, or to eliminate the base altogether and tax workers' full wages at a lower rate.
While the state’s unemployment insurance trust fund has garnered significant attention of late, including a debate over whether solvency issues that business leaders raised still exist, the Legislature has not taken up proposals for large-scale reform.
Finally, Baxandall suggests that creating a tiered corporate minimum tax could raise more money from large corporations without hurting small businesses. About three-fourths of Massachusetts businesses pay the $456 corporate minimum, Baxandall said.
The minimum, which he said has not been changed in decades, serves as a “backstop,” he said, to ensure that every business makes a “meaningful contribution” to state revenue.
“It could be a small, one-person company where someone works only part time or had bad year, so [they] didn’t make profits,” Baxandall said of companies that pay the minimum. “It could also be giant corporation who is able to list their profits as originating in the Cayman Islands or was able to get credits to defray their taxable income — whatever kind of tax avoidance, legal or not, or anything in between.”
A tiered minimum could use gross revenue to determine how much a company should pay, Baxandall said. The House included a tiered minimum, under which companies with over $1 billion in yearly sales would have paid at least $150,000, in a transportation funding bill last year, but the Senate did not take up the proposal.
“The idea behind a tiered minimum,” Baxandall said, “is that a meaningful contribution is different for a mom and pop business than it is for a major multinational corporation.”