Massachusetts voters will decide in November whether to change a decades-old law controlling when the state must return excess tax revenues to taxpayers, a proposal that could mean more frequent refunds but leave less money available for public services and financial reserves.
Question 5 would amend Chapter 62F of Massachusetts General Laws, which limits state tax revenue growth based on wage and salary growth and requires refunds when tax collections go over the established limit, a threshold reached only twice since voters approved the 1986 ballot question.
Supporters say the proposal would strengthen taxpayer protection and help address the cost of living, while opponents say it could make state finances less predictable and limit funding for public programs, especially during economic downturns.
“This is a limit on how fast we can grow our state budget,” said Chris Keohan, chief strategist for Taxpayers for an Affordable Massachusetts, a committee supporting Question 5. “There is no cut. Once you’ve hit a number, you can never go below that number.”
Rather, the debate focuses on the calculation of the state revenue limit and what should happen when tax collections exceed it.
Under current law, Massachusetts calculates its tax revenue limit using a starting point based on how much the state collected in 1986. The limit then grows each year based on the average growth in wages and salaries over the previous three years, and it cannot go down even if tax collections fall.
Question 5, if passed, would instead base the new limit only on how much tax revenue the state collected the year before, then adjust for wage and salary growth. If the state collects more than the new limit, the excess money would be returned to taxpayers the following year.
The new formula would also include revenue from the state’s 4% surtax on annual income above $1 million, known as the millionaire’s tax. Question 5 would not remove the surtax, but that revenue would count toward the limit used to determine whether refunds are required.
Evan Horowitz, executive director of Tufts University’s Center for State Policy Analysis, said Question 5 could trigger refunds even when the state’s revenue growth is slow, because the new formula would no longer allow weaker years to offset stronger ones when calculating the cap.
“The question is badly written, and it has a bizarre feedback mechanism that will generate refunds even when revenues aren’t that strong,” Horowitz said.
A CSPA report estimates that Question 5 could trigger three to five times as many refund events over the next 20 years as the current law would, although the projections depend on future economic conditions.
The center estimates that the change would amount to an average of $200 to $250 per taxpayer per year over that period. However, this is not a guaranteed yearly payment as the average includes years when taxpayers receive a refund and years when they receive nothing.
As Horowitz explained, “it’s not like $250 every year.”
In years when refunds do occur, individual payments could reach several hundred dollars and potentially $500 to $600 by the 2040s, according to CSPA’s projections. Under the current law, the cap has been reached only twice: in 1987 and 2022, when Massachusetts returned nearly $3 billion to taxpayers.
Supporters of Question 5 argue that residents should benefit when the state collects more revenue than its limit allows.
“State government revenues should not grow faster than the overall wages and salaries of people paying the taxes,” said Jim Stergios, executive director of the Pioneer Institute and endorser of Question 5.
Keohan says that the state budget is growing faster than residents’ ability to pay, as families face high housing, grocery and childcare costs. He said this proposal is one part of a broader effort to make Massachusetts more affordable.
“We’re not saying that this is a silver bullet that will solve affordability, but this is the first step in the right direction of what hopefully is many to make [Massachusetts] more competitive and affordable,” Keohan said.
Opponents argue that the refunds need to be weighed against what the state could lose by keeping less revenue, as the money currently used for public services or saving could instead go back to taxpayers, leaving lawmakers with less flexibility when making budget decisions.
Jessica Tang, president of American Federation of Teachers Massachusetts, which opposes Question 5, said residents could lose more through fewer services than they gain from a rebate.
“If your Medicaid coverage is taken way, if your after-school program is shut down, if your local roads have more potholes, a rebate of $250 isn’t going to do very much in terms of what you’re going to lose,” Tang said.
Phineas Baxandall, director of research and policy analysis at MassBudget, warned that the impact on public programs could be especially damaging if limited funding and economic recovery occur together.
“If Question 5 is enacted, it’s going to result in a lot of cuts to public programs that are going to be painful to families and communities, and it will happen in a haphazard way,” Baxandall said.
He added that the cuts could be unpredictable but would most likely occur “just as our economy is coming out of a recession when we most need that state investment.”
Paul Craney, executive director of the Massachusetts Fiscal Alliance, which supports Question 5, rejected concerns about service cuts, calling them a “scare tactic.” He argues that the proposal would return excess revenue to taxpayers than directly require cuts to public programs.
Stergios questioned whether concerns about public funding are accurate. He estimated that the revenue reduction could range from tens of millions of dollars in some years to $500 million in others. He compared the potential reduction with the state’s overall budget, which is over $60 billion annually.
“I frankly don’t think it’s relevant to this debate,” Stergios said regarding the opposers’ public funding cuts argument.
Stergios argued that the state should focus on how it manages the money it already collects, rather than assuming that returning excess revenue would mean cutting services.
“There are very judicious things we can do to make sure that we are maintaining every promise we have to make,” Stergios said.
Question 5 could also affect the state during a recession. Opponents say that refunds could leave less money available to support residents and communities as the economy recovers.
Stergios pushed back on the idea that the state’s existing revenue limit automatically falls when wages decline, explaining that the law states “even if wages and salaries go down, the state’s budget growth level doesn’t go down.”
Doug Howgate, president of the Massachusetts Taxpayers Foundation, warned that Question 5 could make it harder for the state to recover from a recession by moving money that would otherwise go toward financial reserves and taxpayer refunds.
If tax revenues fall during a downturn, the next year’s limit would be based on those lower collections, which could restrict how much money that state could keep as the economy recovers.
“It really puts in place this guardrail that is going to make it really hard to recover from a recession,” Howgate said. He added that the proposal would “pretty directly swap out money that we currently deposit in the state savings account into tax rebates.”
Question 5 would not change how refunds are distributed. Eligible taxpayers would continue to receive equal payments, regardless of how much tax they paid.
“Whether you made $30,000 in taxable income or 3 million, you’d get the same check,” Keohan said.
Polling suggests mixed thoughts on Question 5. A UMass Amherst/WCVB poll found 58% of voters supported the measure, compared with 20% opposed, while a Suffolk University and Boston Globe poll found 40% in favor and 38% opposed. With many voters still undecided, the outcome remains uncertain.
Horowitz cautioned that voters must consider the uncertainty of long-term economic projections when deciding to change the state’s tax refund formula.
“There are a lot of ways we could be wrong, and one of them is that the future could be weirder than we expected,” he said.
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