It’s beginning to look a lot like tax cuts for Massachusetts residents are a matter not of “if,” but when. So now the question turns to how — and who will benefit when political leaders agree to return some of the money from those overflowing state coffers to the taxpayers.
April tax revenues created an embarrassment of riches that even tax-cut averse lawmakers could no longer ignore. The tax haul for April was $3 billion over April 2021, $2 billion more than was expected for the month, putting the state $3.5 billion over its year-to-date benchmarks with two months left in the fiscal year.
Governor Charlie Baker had earlier proposed some $700 million in tax relief, much of it aimed at the state’s lower income residents. But the House passed its $49.6 billion budget last month without touching the tax cut issue. The Senate is expected to do the same in its proposed spending plan due out Tuesday.
But last week’s revenue news began to move that needle. Senate President Karen Spilka went on record with a statement noting, “While the details remain to be worked out, I believe we can safely balance targeted spending investments to a number of crucial areas, such as housing, childcare and higher education, with tax relief for individuals and families who are feeling the effects of inflation and continued economic disruption.”
Baker followed last Friday saying that the state was “awash in revenue and we’ve been saying since January . . . a piece of this needs to go back to the taxpayers.”
And as lawmakers craft their own tax relief package, they need to consider at least one thing Baker got right — that policy counts, that this is the time to make policy changes that need to be made anyway.
That’s certainly the case with raising the threshold on the estate tax from $1 million to $2 million and fixing Massachusetts’ outlier status as the only state in the nation where if an estate goes $1 over that $1 million mark it gets taxed from dollar-one.
House Speaker Ron Mariano noted last March that he had been exploring changes to the estate tax and pairing that with “something else that would benefit renters” even before Baker introduced his bill. The Baker proposal includes increasing the cap on deductions for renters from $3,000 to $5,000, giving working families some $77 million in tax relief.
And as Baker noted last week, it is indeed troubling that the threshold for paying any income tax at all is lower at the federal level than it is in Massachusetts. His proposal would make the income level consistent with federal tax law and put about $41 million back into the pockets of 234,000 low-income taxpayers.
Other proposed tax breaks include doubling the circuit-breaker real estate tax credit for low income seniors and doubling the tax credit for dependent care and child care.
Talk of tax cuts comes at a time when the state’s rainy day fund — a reserve against an economic downturn or fiscal emergencies — is at a record high level, expected to reach $6.55 billion by the end of the next budget. But it’s also a time when inflation has become a budgetary force to be reckoned with. So lawmakers will be looking at the long-term ramifications of any tax cuts.
However, at least 13 other states have used surplus revenues this year to pursue personal income tax reforms, according to a recent report by S&P Global Ratings. And just last week Connecticut’s Democratic governor negotiated with Democratic majorities in both branches of that legislature for the largest tax cut in that state’s history — some $600 million, about half of which will be in one-time cuts. The latter included a gasoline tax holiday and increases to the child care tax credit that would be refundable this summer.
So there are certainly ways for lawmakers to make an impact now and into the future for families who are still hurting and to make overdue reforms in the state tax code at the same time. What is needed is focus, fairness, and a willingness to admit that tax relief in times like this can be a good thing.
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