How Patrick's Tax Plan Hits the Rich Harder

Our Constitution bans a progressive income tax, but Patrick got clever.

The new tax proposal Gov. Deval Patrick revealed in Wednesday’s State of the State speech had an obvious strategy behind it: making the tax code more progressive by placing the bulk of the new burden on higher-income earners and cutting the tax burden of those on the lower end.

How did he manage to do this? The state’s Constitution bans a progressive income tax, which would allow people to be taxed at different rates depending on their incomes, and efforts to amend the Constitution have repeatedly failed. Patrick’s plan works around that restriction in two ways.

First, he wants to lower the sales tax, which is often regarded as regressive, because demand for lots of goods hit by the sales tax doesn’t change much across incomes. As in, rich people don’t buy much more toilet paper than poor people do, meaning the rich pay a smaller proportion of their salary on the sales tax appended to it.

Second, and more significantly, he wants to double personal exemptions. Under current rules, single taxpayers can claim a personal exemption that reduces their taxable income by $4400. (For married couples it’s $8800.) Doubling a four-figure exemption will offer significant relief to someone making, say, five figures, but will have a relatively smaller impact on someone making seven figures.

The net effect of all this is that even though Patrick wants to raise the income tax equally across income levels, and collect $2 billion more than he’s been collecting from us, he’s off-setting the tax hike with two measures that actually lessen the tax burden of most low-income earners, while placing most of the new burden on the wealthier ones.

The Boston Globe published data provided by the Executive Office for Administration and Finance Thursday morning showing how the average tax burden by income level would differ under the new plan. According to the data, people making less than $21,750 will pay $100 less per year in state taxes, on average. On the other end, people making over $102,886 will pay $3,200 more, on average.

To see how those changes make the overall tax structure steeper, we used the Globe’s data and did a back-of-the-napkin calculation on how it would change the effective tax rate for a representative earner in each income bracket, (as in, the tax rate you’re actually paying when sales taxes and exemptions and everything else are included) so we could get a visual:

The blue bars represent the effective tax rates for the various incomes as they stand now. The green bars are the tax rates under Patrick’s plan. Note how the green bars ascend far more steeply than the blue bars. This is, politically, pretty clever. As President Obama’s talk of “millionaires and billionaires paying their fair share” (and his subsequent victory) should prove, raising taxes on higher income earners is much more popular than raising taxes equally on everyone. Patrick is still bound to face a dogged fight from those that don’t want anyone’s taxes raised, and his plan raises taxes on people making $60,000, which isn’t exactly “millionaires and billionaires.” But this way, he gets to argue that he’s actually lowering some peoples’ taxes even as he raises everyone’s income tax rate.