Tax cap reform
This question asks whether the formula for calculating the limit on state tax collections should be altered, increasing the likelihood that Massachusetts owes money back to taxpayers at the end of a fiscal year.
What your vote means
If this passes
Massachusetts would use the new formula for calculating allowable tax collections and more regularly need to return money to taxpayers.
If this fails
The current formula would remain in place.
Effective date
July 1, 2027
What this does NOT change
Any tax rates.
The breakdown
This question seeks to make a technical change to a law passed by voters in 1986, which could have a big impact: amending how the annual limit on state tax revenues is calculated, a system often referred to as Chapter 62F.
The cap is currently calculated by taking the prior year’s cap and increasing it by the same rate as the statewide growth in wages and salaries. Under the ballot question, the cap would instead be calculated by taking the prior year’s total state tax revenue and adjusting it for the statewide growth in wages and salaries.
That would make it much more common for Massachusetts to owe more money back to the taxpayers at the end of the fiscal year because total revenues are usually less than the cap each year. Calculating the cap off of a lower baseline would make it easier to trigger a refund.
Think of it this way: Let’s hypothetically say the existing law allows state government to collect no more than $50 billion in state tax revenue in fiscal year 2026, and the state actually collects $45 billion in taxes, so it does not owe any money back.
In the meantime, statewide wages and salaries increase by 2 percent, so the cap for fiscal year 2027 in this example is calculated by taking last year’s cap — $50 billion — and adding 2 percent, which is $51 billion.
If the ballot question were in effect, it would look much different. All of the inputs stay the same: The cap is still $50 billion in fiscal year 2026, and the state still collects $45 billion, and statewide wages and salaries still grow by 2 percent.
But the cap for fiscal year 2027 is instead calculated by taking the actual revenue total — $45 billion — and increasing it by the growth in wages and salaries, or 2 percent. $45 billion plus 2 percent becomes $45.9 billion, creating a significantly lower cap for fiscal year 2027 than current law would.
The ballot question would also count surtax revenue, which is currently exempt from the calculations, toward allowable tax collections.
How did we get here?
Voters in 1986 approved a ballot question setting a limit on how much Massachusetts can collect in taxes. If revenues surpass that limit, the state government must return the overage to taxpayers.
That has only happened twice: once in 1987, and again in 2022, when the state had to issue rebates totaling roughly $3 billion. In 2022, the rebates were proportional, so wealthier taxpayers who paid more received more money back, but the Legislature and Gov. Maura Healey changed the law in 2023 to require rebates to be equal for everyone.
That year, Beacon Hill also explicitly exempted funds from the voter-approved surtax on wealthy households from counting toward the cap on allowable tax revenue, which the ballot question would reverse.
Business and free market groups filed the ballot question to force more money to flow back to taxpayers and with greater frequency. They also pursued a different ballot question that would cut the state’s income tax rate from 5 percent to 4 percent, but the Supreme Judicial Court blocked that measure from going before voters because of an error Attorney General Andrea Campbell’s office made when drafting the official summary.
Lawmakers have bristled at the proposal, arguing that it would inject uncertainty into revenue calculations when it comes to crafting a state budget.
This article first appeared on CommonWealth Beacon and is republished here under a Creative Commons Attribution-NoDerivatives 4.0 International License.
