As national tax reform has focused on cuts and simplification of the tax brackets, Massachusetts has been discussing the “Fair Share Amendment.” The measure would create an additional 4 percent state tax on income over $1 million.
Why is the state legislature discussing tax increases? How does an increased focus on collections also tie in?
Increasing number of millionaires
The Atlantic details important numbers that have changed between 2001 and 2014 (the most recent year for which data is available) including:
- Households with adjusted gross income of one million have doubled
- Collective income earned by millionaires went from $600 billion to $1.4 trillion (twice the rate for the rest of the country)
While the tax code is progressive with tax rates that increase as you earn more income. It is only to a point. The top federal tax bracket starts at about $450,000. The last dollar earned by a physician with a salary of $500,000 is taxed at the same rate as the last dollar an executive making three times that amount earns.
Capitals gains tax on investment income remains at a preferential rate as well.
This idea is one way to boost income tax revenue and prevent some of the deep cuts to education or other services. It may be more tenable than ending the mortgage interest deduction or state and local tax deductions.
As discussions continue around tight budgets, collection efforts may receive more focus. The IRS has devoted significant resources to identifying and prosecuting those with undisclosed offshore accounts. Third party contractors are also a new part of the IRS collections toolbox.
In the current environment, it is vital to act quickly to resolve tax issues. Whether you have received an audit notice or unable to pay a tax deficiency, seek advice from an experienced tax attorney before the problems compound and become more difficult to solve.