Is a millionaire tax the silver bullet for income inequality? This economist isn’t so sure

A woman holds a lot of hundred dollar bills in her hands. Without a face. Close-up from a low angle.
Photo by Serhii Shleihel/Getty Images

Every public school student in Massachusetts will get free lunch, and it’s all thanks to the money generated by a new state tax on millionaires.

The new 4% tax on income over $1 million, which voters approved last year and exists alongside the state’s fixed 5% income tax, will generate $1 billion of the state’s $56.2 billion budget for fiscal year 2024. The money will fund education and infrastructure projects in Massachusetts and is estimated to affect only about 0.6% of households, according to the Center for State Policy Analysis.

Massachusetts is one of several states, including California, Washington, New York and Connecticut, that is looking for ways to tax their wealthiest residents and start to reduce the gap in income equality in the U.S. These policies have their critics, with some arguing their economic viability is still unproven and that they promote costly tax avoidance.

headshot of Bob Triest
Bob Triest, professor and chair of economics at Northeastern University. Photo by Matthew Modoono/Northeastern University

But Massachusetts is one of the first states to show how the money generated by a fraction of its residents could benefit people statewide. Is it proof a millionaire tax is the silver bullet for income inequality that many hope it could be? Bob Triest, professor and chair of economics at Northeastern University, says the policy has a clear appeal, but it’s not that simple.

While Triest says the tax on millionaires adopted by Massachusetts is a promising development, it’s just one way to address the economic challenges people and states are facing.

“From an economist’s perspective, there’s nothing special about that threshold of $1 million,” Triest says. “Personally, I would have preferred that the threshold be moved lower and have 5% as the base rate, go up to 7% above some threshold and then 9% when you get to $1 million, or something like that. But the appeal of the millionaires’ tax is that it was politically feasible because it’s taxing a relatively small number of people and producing revenue that benefits a much larger group.”

The kind of progressive, graduated tax structure that Triest references would raise even more revenue but would affect more people, bringing with it political challenges. Something similar is being considered by California, which already has a progressive tax structure that varies based on income level. The proposal in California focuses on taxing wealth instead of income, with a 1% tax on household wealth above $50 million and a 1.5% tax on wealth above $1 billion.

Targeting wealth instead of income is a strategy several states are taking in an effort to tax people who are incredibly wealthy but have very low taxable income.

“Taxing wealth is a way to generate revenue in a way that is viewed as fair by many people and that those that have a lot of wealth, who may have managed to arrange their affairs to have low taxable income, would still be paying their fair share,” Triest says.

It also could help address the concern that people will “try to rearrange their income so that every year they’re just below that [tax] threshold,” Triest says of the Massachusetts millionaires’ tax. People can move to another state, move their business or assets to another state or even their assets into a trust to avoid paying the 4% tax. However, at least in Massachusetts, Triest is not “overly concerned about that.”

“The 9% marginal tax rate on income over $1 million is something that does provide incentive for taxpayers to either leave the state or somehow relocate their income to avoid the now higher tax rate over $1 million,” Triest says. “It will occur, but it’s unlikely to be of a catastrophic magnitude.”

For Triest, this kind of tax avoidance is one of the reasons it would be more effective to adopt a federal tax on the wealthy. Earlier this year, President Joe Biden pushed for a billionaire tax in his budget. Despite Americans’ increasingly negative view of billionaires, the budget proposal faced fierce political pushback and congressional gridlock.

While a millionaire or billionaire tax might not be the solution to every problem, it’s one tool in the toolbox, as Massachusetts proves. Triest says Massachusetts’ millionaire tax points a potential path forward, at least politically, for future policies that could help address the income gap and revenue challenges that communities across the country face.

“I think a millionaires’ tax is one way to do so that was proven to be politically feasible,” Triest says. “It’s also equitable in the sense that it’s not falling on low-income people at all. But there are other ways to raise money that would also be equitable. It’s just a question of whether they would be politically feasible.”

Cody Mello-Klein is a Northeastern Global News reporter. Email him at Follow him on Twitter @Proelectioneer.