With just three weeks left in their legislative session, top Massachusetts Democrats on Monday unveiled a multibillion-dollar economic development package that pledges more than $1 billion in tax breaks and rebates, including increases to the credits that seniors, low-income workers, and parents can claim.
The sweeping bill would constitute one of the largest tax relief measures in Massachusetts in a generation, and offers a response to calls for Beacon Hill to ease the burden on taxpayers at a time of sharply spiking consumer prices and overflowing state coffers.
In all, the $3.8 billion package House Democrats released Monday includes nearly $524 million in permanent tax breaks, as well as $510 million in previously announced one-time rebates that would be distributed to potentially millions of taxpayers by October.
Many of the proposed tax breaks hew closely to a plan Governor Charlie Baker released months ago, and leaders in the House and Senate say they have agreed to the “framework” of the tax changes, which should help ease its passage during the final scramble before the formal legislative session ends on July 31.
The House bill would spend more than $2.5 billion from a state budget surplus — which is expected to range in the billions — and the state’s remaining share of federal stimulus money, including doling out hundreds of millions of dollars for hospitals, infrastructure projects, and the state’s unemployment trust fund.
“We have stayed focused on providing real relief for the citizens of the Commonwealth,” Representative Mark J. Cusack, a Braintree Democrat and the House’s revenue chairman, told reporters Monday. “Not political gimmicks, not what’s politically expedient, not for a quick press hit that we have seen not work in state after state across the country. What we have here today is $1 billion in relief.”
As part of the bill, lawmakers are seeking to increase a tax credit low-income seniors can claim to offset property taxes or rental costs, hiking the maximum from $1,170 to $1,755.
They also want to increase the state’s child and dependent tax credit to allow families to claim $310 per dependent — the current credit per child is $180 — and eliminate a total $360 cap. The plan would also increase the state’s earned income tax credit from 30 percent to 40 percent of the federal tax credit, a move lawmakers say would help nearly 400,000 taxpayers with incomes under $57,000.
The plan would also lift a deduction cap some 881,000 renters can claim to $4,000 from $3,000, marking what would be the first adjustment in more than two decades.
The most costly proposed tax change — and the one that would affect the fewest people under the plan — targets the state’s estate tax. Currently, just 12 states, plus Washington, D.C., tax estates after death, according to the AARP, with Massachusetts taxing estates above $1 million. That’s tied with Oregon for the lowest threshold in the country.
Similar to Baker’s proposal, House lawmakers are seeking to double it to $2 million, and tax only those dollars after that threshold; currently, should an estate exceed the $1 million mark, all the money is taxed. The House is also seeking to increase the tax rate on estates over $5 million, from 16 to 17 percent, to potentially capture more from the state’s wealthiest.
All told, the changes would help roughly 2,500 taxpayers save more than $200 million annually, the House estimated.
The House is expected to debate and pass the measure this week, after which it would go to the Senate.
“These tax changes are permanent,” House Speaker Ronald Mariano said. “They don’t expire, they are not sun-setted.”
It’s also likely taxpayers may not realize them for nearly two years. Each of the measures would take effect in January, House officials said, meaning residents are likely to claim the increased credits when filing their 2023 taxes in the spring of 2024.
The proposal appears to borrow heavily from Baker’s plan for $700 million in tax breaks, though with slightly different dimensions. “The Administration is pleased that the Legislature is advancing many of these ideas,” Terry MacCormack, a Baker spokesman, said in a statement Monday.
It also didn’t include several of Baker’s ideas. The House opted against raising the income threshold for residents to qualify for “no-tax status,” a move Baker administration officials said would help save 234,000 taxpayers roughly $41 million.
Democrats have also shunned Baker’s proposal to reduce the tax rate on short-term capital gains — investments held for up to a year — from 12 percent to 5 percent. Progressive lawmakers have criticized it as a move that would largely benefit the state’s wealthier residents.
Most tax debate in recent years on Beacon Hill have focused on how to raise levies, not slash them, whether it be during the depths of the recession when then-governor Deval Patrick signed $1 billion in tax increases into law, or in 2020, when the House passed a $600 million tax package that died during the pandemic.
One of the last major tax decreases residents enjoyed came from a 2000 initiative voters approved to lower the state’s income tax from 5.85 percent to 5 percent. But it took nearly 20 years for it to be fulfilled, thanks to a years-long, legislatively created process to phase in the decline far more slowly than voters wanted.
The drumbeat recently has been for more relief. Baker and others have repeatedly pressed lawmakers to take action, citing the state’s strong financial standing.
The state still has $2.3 billion in unspent federal stimulus money, of which nearly $1.3 billion would be spent under the House bill. And the Massachusetts Taxpayers Foundation, a business-backed budget watchdog that has pushed Baker’s tax cut package, projected lawmakers will have an additional surplus of nearly $3.6 billion from the fiscal year that ended last month.
Eileen McAnneny, the foundation’s president, praised the House’s package for offering help to low- and middle-income families, but she bristled at the effort to increase the tax rate on the most valuable estates, arguing it will give “another reason for wealthy residents to leave this state.”
Baker has already said he’d back a proposal the Legislature announced last week to send potentially millions of taxpayers a one-time $250 rebate by October. Under the $510 million plan, those eligible would have to have reported a minimum of $38,000 in 2021 income, and not more than $100,000 for individual filers or $150,000 for joint filers.
Representative Aaron Michlewitz, a North End Democrat who is his chamber’s budget leader, said the rebate program would be the third-largest in the country, behind ones in Georgia and Colorado.
The economic development bill announced Monday would fund a variety of other areas. It would set aside $350 million for what House officials called “financially strained” hospitals, as well as $165 million for nursing facilities. Another $175 million would go toward upgrading state parks and recreational facilities, while $300 million would help prop up the state’s unemployment trust.
As expected, the bill would delay Baker’s push to redevelop the Hynes Convention Center.
It also would create a new tax credit program for theater productions, allowing up to $5 million to help cover payroll, production, and transportation costs. The program has similarities to the state’s controversial film tax credit program, which lawmakers last year voted to make permanent.
The state’s Inspector General in the spring urged lawmakers not to adopt a theater production credit. As proposed by the House, the program would offer a 35 percent credit for in-state labor costs, which Inspector General Glenn Cunha has said is higher than every other live theater tax credit program in the country.
Correction: An earlier version of this story misstated the current maximum on a tax credit for seniors. It’s currently $1,170.