Ballot Question 5 Looks to Reformulate State’s Tax Revenue Cap

Since 1986, Massachusetts has had a cap on how much tax revenue the state can collect in a year, requiring the state to refund taxpayers if the cap is exceeded. But in 40 years, a refund has only been triggered twice.

Ballot Question 5 gives voters the chance to make those refunds more common.

Question 5 makes two major changes to Chapter 62F, the state’s 1986 tax law, that would go into effect on July 1, 2027. First, it would base each year’s limit on the revenue the state actually collected the previous year, plus the average growth in Massachusetts wages and salaries over the last three years. It would also count revenue from the surtax on incomes over $1 million.

Four committees have formed in opposition to the proposition, and one has formed in support — raising more than $1.2 million combined. Supporters say it puts a guardrail on a budget that is growing too rapidly, while opponents say it would force cuts to services that people rely on.

What Would Question 5 Change?

In 2022, Massachusetts had money to spend — prompting the first tax rebate for residents since 1987 after federal pandemic aid padded the state’s budget.

Billions of dollars went back to taxpayers. Phineas Baxandall, the director of research and policy analysis at Massachusetts Budget and Policy Center, said it was “in some ways the best possible conditions” for the law to trigger. With federal money flowing, the state could write the checks without cutting existing programs.

Chapter 62F itself began as a ballot question, and was approved in 1986. It requires the state to issue refunds if tax revenue in a fiscal year exceeds a cap tied to wage and salary growth.

Question 5 changes the limit on how much revenue Massachusetts can collect in a given fiscal year. If the revenue collected by the state exceeds the limit, then the excess amount would be refunded to taxpayers in the form of a rebate.

When determining whether state revenue exceeds the limit, the proposed law also would include all revenue from the millionaires tax — a surtax on incomes above $1 million.

The state Senate is already weighing its own economic bill that includes a provision that would limit rebates, and if both the bill and Question 5 pass, it is unclear which would take effect. Lawmakers have until early January to finish the bill, which would keep the 1986 cap in place but make rebates less frequent than Question 5 would.

The ballot question would reset the revenue limit each year to the prior year’s collections plus average wage growth, and count the millionaires’ surtax, making rebates more likely. The Senate version instead would trigger rebates only if state tax revenue reaches 7.5 percent or more of total statewide personal income for the year

Who is Backing Question 5?

Question 5 is backed by the committee Taxpayers for an Affordable Massachusetts, which has raised nearly $2.65 million and spent more than $550,000 to support the proposition. Chris Keohan, the committee’s senior strategist, said Question 5 “just limits how fast you can grow.”

“Our budget is growing two times faster than wages, two and a half times faster than inflation, and Massachusetts is losing a resident every 11 minutes and 38 seconds,” Keohan said, adding the proposition would “update the existing law to be more in line with the way budgets work now.”

Keohan said the current formula, built on what the state could have collected rather than what it did, makes refunds harder to deliver.

“This is the only thing on the ballot this November that actually puts money back in people’s pockets,” he said.

Recent polling results show the ballot question has gained the support of a majority of respondents: a UMass Amherst/WCVB poll last week showed roughly 58 percent of respondents were likely to vote “yes” on Question 5, while 20 percent were likely to vote “no” and another 13 percent were undecided. A Suffolk University/Boston Globe poll found last week that roughly 20 percent of respondents were still undecided on the measure, and that 40 percent were likely to vote “yes”.

Who Opposes Question 5?

The four committees opposing Question 5 — Protect Massachusetts Future, Raise Up Massachusetts 2026, Democratic Socialists Against Austerity, Democratic Socialists Against Reactionary Rollbacks — have together outspent supporters by a small margin.

Protect Massachusetts Future reported $659,264.73 in expenditures and about $124,400 in in-kind, or contributions. Three smaller opposition committees added roughly $31,600 more, bringing total opposition spending to about $690,900.

Andrew Farnitano, spokesperson for the Protect Massachusetts Future — a coalition of labor unions, faith organizations, and business leaders — said every rebate dollar is one that can’t go to state efforts to fund housing, health care, or child care.

“The wealthy investors and CEOs who put Question Five on the ballot don’t depend on public service,” Farnitano said.

Farnitano argued that the Senate’s bill proposes a “a reasonable guardrail to preserve the original intent of the voters in creating the system,” while the proposition’s supporters have claimed that the bill would “completely neuter 62F.”

But he argued that the Senate bill would keep refunds from being set off by accounting quirks like a business tax credit claimed in a different year than it is booked, and said his coalition wants it whether or not Question 5 passes.

“State revenue growth should not exceed the overall growth of the economy,” Farnitano said.

Question 5’s impact on the state’s “rainy day” fund has also been a point of contention as opponents have argued that limiting the money funneled into the fund would put the state at greater risk of having to make budget cuts during economic downturns.

Farnitano cited a report from the Massachusetts Taxpayers Foundation, that usually favors tax cuts and opposes the measure, that estimated Question 5 would have cut deposits into the fund by $4.6 billion over the past decade.

Keohan argued that the fund currently sits at a record $8.1 billion and that bond rating agencies have raised the state’s rating in recent years.

How often Question 5 would trigger rebates is not yet clear. Keohan said studies estimate between 16 to 24 refunds would have been issued over the last 40 years under the new formula. A Tufts analysis, by contrast, projected ten in the next 20.

Baxandall said he was concerned that changing the formula as proposed in Question 5 would make it harder for the state to brace for economic uncertainty by diverting a larger amount of revenue into rebates.

“When we’re coming out of a recession and when the economy is kind of just trying to get back on its feet and state investment is arguably most important for the economy will be precisely the time when the legs will get kicked out underneath that investment and the state will have to make these rebates instead of those investments,” he said.

—Staff writer Julia A. Karabolli can be reached at [email protected].