Question 5 Would Rewrite the Tax-Cap Formula That Sent Back $2.94 Billion in 2022. Tufts Estimates Refunds Two to Four Times as Often

Question 5 does not change any tax rate. It changes the formula in Chapter 62F, the 1986 voter-approved law that limits how fast state tax revenue can grow and returns the excess to taxpayers.

According to the official ballot summary, the proposal "would limit state revenue in a given year to the net amount of state revenue from the year before, increased by a rate equal to the average growth of wages and salaries in Massachusetts over the most recent three years." If revenue exceeds that limit, the excess would be refunded to taxpayers the following year. The proposal would also "include all revenue from the surtax on incomes over $1 million when calculating the revenue limit and when determining whether state revenue exceeds the limit." All provisions would take effect July 1, 2027.

A no vote would make no change to the law.

The key change is the starting point. Under current law, each year's cap is built on the previous year's cap. Under Question 5, the cap would be built on what the state actually collected the year before. When collections come in under the cap, a formula based on actual collections produces a lower limit the next year, which makes a refund more likely to trigger.

The 62F refund has been rare. It was triggered in 2022, when the state returned about $2.94 billion to taxpayers after a surge in collections, and once before, in 1987.

The Center for State Policy Analysis at Tufts University, which publishes nonpartisan analyses of ballot questions, estimated that a yes vote would trigger refunds two to four times as often and return two to seven times as much money, according to the university's voter guide. Averaged across refund and non-refund years, that works out to about $200 to $250 per taxpayer per year, the guide says, and a revenue reduction comparable to a 0.15 to 0.2 percentage-point cut in the income tax.

Tufts' analysis, titled "A hair trigger for automatic tax refunds," is a model, not a promise of payments. Refunds under 62F are distributed in proportion to each taxpayer's state income tax liability, so taxpayers who owe more receive larger refunds.

The 4 percent surtax on annual income over $1 million, approved by voters in 2022, is currently excluded from the 62F calculation. Question 5 would count it. The surtax itself would remain in place; the question does not repeal it. But by adding surtax revenue to the total compared against the cap, the measure increases the chance that collections exceed the limit in years when high earners' incomes rise.

The Massachusetts Fiscal Alliance supports a yes vote and argues that excess revenue should be returned to taxpayers without loopholes. Opponents argue the measure would force repeated budget cuts to schools, transit and local aid.

Municipal officials have weighed in. At its Oct. 19-20 meeting, the Cambridge City Council voted 9-0 to go on record opposing Question 5 "due to the consequences this would have for the City of Cambridge and other municipalities across the Commonwealth," according to the Cambridge Civic Journal's record of the vote. The Massachusetts Municipal Association has listed Question 5 among three ballot questions that raise concerns for local leaders.

The basic trade-off is between more frequent rebates and less money for the state budget and reserves. A refund under Question 5 would be paid from revenue the state had already collected, so any increase in rebates would be matched by less money available for appropriation or for the stabilization fund. The ballot question does not specify what spending, if any, would be reduced; that would be up to the Legislature and the governor each year.

Critics also argue the formula could trigger refunds in years of slow revenue growth if wages had grown faster in the prior three years, which tends to be when budgets are tight. Supporters respond that a cap tied to wage growth keeps state revenue in line with residents' ability to pay.

How Question 5 would play out depends on the economy. Tufts' range is wide because refunds depend on how revenue and wages move relative to one another, which no model can predict precisely. Whether a typical household would receive the average figure, and how much of the total would go to the highest earners, depends on how the refunds are distributed.

Polls are open from 7 a.m. to 8 p.m. Tuesday. The official arguments for and against Question 5 are printed in the state's Information for Voters booklet.