Tax Tenure?

On Election Day, voters in Massachusetts will cast ballots on Question One, which would amend the state constitution to impose an additional 4 percent tax on income over $1 million. The revenues generated would be designated for education and transportation.

The voter information distributed by the state describes the initiative as backed by a group called Fair Share Massachusetts. But as the fine print down at the bottom of the Fair Share Massachusetts web site indicates, Fair Share Massachusetts is a front organization for the teachers unions. “Top donors include Massachusetts Teachers Association, National Education Association, American Federation of Teachers, AFT Solidarity Fund, AFT Massachusetts,” the language says.

Recent data obtained by Education Next directly from the Massachusetts Office of Campaign and Political Finance show that the top 12 donations to Fair Share Massachusetts are all from teacher unions or their affiliates. That funding totals $15.8 million of the $18.8 million total the group has raised so far. It is a sum about equal to what it costs to run a winning U.S. Senate race.

The argument in favor of the tax in the information distributed to voters by the state comes from Cynthia Roy, who is identified only as being from “Fair Share Massachusetts.” Roy, it turns out, is a member of the executive committee of the Massachusetts Teachers Association. She didn’t respond to my phone message and email seeking comment.

Plenty of taxpayers, and not only millionaires, are hoping the Massachusetts business community steps up and funds a campaign to educate voters on the dangers of this tax increase. That would at least create a level playing field. There’s still time.

The sight of teachers unions pouring such considerable sums into an effort to raise income taxes in Massachusetts got me thinking, though, about a possible fallback strategy: make the teachers worry that they could wind up paying the tax themselves.

It might sound farfetched. But as any good tax lawyer or accountant understands, there’s an art to defining and timing income. Massachusetts state law grants tenure to teachers after three years on the job, virtually guaranteeing them a career of future earnings, health benefits, and an annual pension that amounts to roughly 80 percent of their earnings.

Consider the math, in round numbers, for a teacher who gets tenure at age 30, works for 35 years, and then collects a pension for 20 years. In Boston and suburbs like Brookline, Wellesley, Concord, Weston, and Lincoln, the average teacher salary in 2019-2020 ranged between $100,041 in Brookline to $110,665 in Concord-Carlisle, according to Massachusetts state data. The salaries have gone up since then, and they don’t reflect the value of employer-provided health insurance. Thirty-five years at an average of $100,000 a year is $3.5 million. Twenty years at an $80,000 pension is another $1.6 million. So a teacher who gets tenure is basically earning $5.1 million—just spread out over a 55 year term. That may even understate it, given the value of the health insurance and the reality of annual upward adjustments.

What’s to stop the state of Massachusetts or federal tax authorities from deciding that, for income tax purposes, when a public school teacher gets tenure, the teacher is subject to tax on the entire $5 million value? Let the teachers try to figure out how to come up with the 4 percent “fair share” tax on the $4 million in income over the $1 million level, or $160,000. Non-teacher families who inherit businesses, retirement accounts, or houses can face similar tax challenges. Perhaps some Bay State teachers, faced with this circumstance, would decide that they’d be better off taking their talents to serve the students in some lower-tax jurisdiction like, say, Florida or New Hampshire.

E.J. McMahon, the founding senior fellow at the Empire Center for Public Policy, a think tank based in Albany New York that has worked to add transparency to the discussion of public-sector payrolls, notes that it would cost more than $1 million to purchase a lifetime annuity that would yield the pension benefit collected by most career public school teachers in in New York.

I ran the “tenure tax” idea by Jim Stergios, the executive director of Pioneer Institute, a Boston-based free-market oriented think tank. Stergios has been working to oppose Question One, recently publishing a Wall Street Journal opinion piece headlined “Don’t Make Massachusetts ‘Taxachusetts’ Again.” He was skeptical. “It won’t scare them off,” he cautioned me. “It’s good for a chuckle.”

They haven’t yet imposed a tax on laughter. The value of it, though, should not be underestimated. A sense of humor has been essential for fighting off tax increases in Massachusetts since the days of Samuel Adams. Adams and his fellow patriots, though, had only the British monarchy and Parliament to ward off, not $15.8 million in teacher union pro-tax-increase political spending.

Ira Stoll is managing editor of Education Next.