The Massachusetts Senate on Monday unveiled a nearly $4.3 billion spending package that includes roughly $1 billion in tax breaks that would take effect this tax year, a year ahead of a similar relief plan that passed the House last week.
Details of the economic development package emerged as lawmakers passed a record $52 billion budget for the new fiscal year, which began July 1.
The tax cuts, which Senate President Karen E. Spilka described as “pretty massive,” include an increased deduction for renters, an increased Earned Income Tax Credit, and an increased child and dependent tax credit. People would be able to claim the deductions when they file their taxes next year.
The House version, which passed unanimously last Thursday, made the tax relief effective in 2023, meaning taxpayers wouldn’t be able to benefit until they filed their taxes the following year.
Like its counterpart in the House, the Senate’s nearly $4.3 billion bill seeks to address the effects of soaring inflation that has made it harder for people to pay their bills. The measure would reduce taxes by nearly $501 million in permanent breaks and another $510 million in one-time relief.
That is slightly less than the House’s bill, which calls for nearly $524 million in permanent tax breaks and $510 million in one-time relief payments.
The proposals are among the largest tax relief measures in Massachusetts in a generation.
“We in the Legislature completely understand the difficulties that many of our constituents are going through in this time of rising inflation,” Senator Michael J. Rodrigues, the Senate’s budget chief, told The Boston Globe on Sunday. “It’s food, it’s gas, it’s clothes. It’s everything.”
Eileen McAnneny, president of the business-backed Massachusetts Taxpayers Foundation, said the Senate’s effort to help taxpayers next year “makes sense” given the pressure they’re feeling.
“One of the purposes of providing tax relief is to provide it immediately,” she said. “Folks are feeling the impact of inflation now.”
Apart from the timing of the tax breaks, the House and Senate largely agree about the contents of the relief package, which increases the Earned Income Tax Credit from 30 percent to 40 percent of the federal level, raises the deduction renters can claim from $3,000 to $4,000, and lifts the child and dependent credits from $180 to $310 per child while removing the cap on the number of dependents a taxpayer can claim.
The Senate’s proposal also would increase a tax credit seniors can claim to offset property taxes or rental costs from a maximum of $1,170 to $2,340, at a cost of $60 million to the state.
The House and Senate are also aligned on a one-time rebate of $250 for individuals who earned $38,000 or more in taxable income last year and $500 for joint filers who earn less than $150,000. Those checks would be sent out by October, lawmakers said.
Rodrigues described the Senate’s plan as “very similar” to the House’s, just “a little different in priorities.”
Legislative leaders are readying for the possibility that the tax breaks take effect earlier. As part of a budget agreement unveiled Sunday, lawmakers proposed a “taxpayer relief fund” that could receive up to $315 million to “support the implementation of new tax relief measures taking effect in tax year 2022.”
Rodrigues called the amount a “good start” for covering the cost of the tax breaks but stressed that the two legislative bodies are not yet on the same page about when they will take effect.
“They have not agreed with us,” Rodrigues said of House officials.
The Senate’s 111-page bill also makes changes to the estate tax deduction that differ sharply from the House’s plan. The Senate’s plan creates a tax credit of $99,600 for estates subject to the state’s estate tax, which leaders said effectively eliminates the so-called “cliff effect.”
The proposal affects about 2,500 estates and costs the state $185 million — about $22 million less than the House’s plan, which changes the estate tax threshold from $1 million to $2 million and taxes only above that amount. The House also raises the tax rate from 16 to 17 percent for the largest estates and applies the higher rate to slightly smaller estates. The new estate proposal would go into effect Sept. 1.
While the plan costs less than the House, the $185 million cost is still a “direct transfer to the wealthiest families in the Commonwealth,” said Phineas Baxandall, a senior tax analyst at the left-leaning Massachusetts Budget and Policy Center.
“It flies in the face of commitments to achieve greater equity in Massachusetts,” he said. “It is a special favoritism that we give to the kind of income that wealthy people tend to have.”
Senate leaders also approved spending increases — in ways both big and small — beyond the House’s budget. They said their proposal would allocate an additional $50 million to struggling hospitals, an additional $225 million for housing production, and an extra $150 million to supplement human service provider rates. It would also set aside another $2.5 million for grants for reproductive care providers, pushing the total past $17 million.
The Senate is also seeking to spend an additional $150 million on grants for child care providers, adding to $250 million legislative leaders already agreed to as part of their budget proposal.
“To have these genuinely eye-popping investments in these areas is an incredible relief to the Commonwealth,” said Senator Adam G. Hines, the chamber’s revenue committee chairman.
The Senate bill also tucks in several policy changes, including a new advisory board to address employee ownership of businesses, a program to assist farmers with state programs and funding, and expanding locations and affordability requirements for starter home zoning districts.
The Senate version of the development bill does not include some provisions passed in the House, such as allowing the state lottery to sell its products online or language that could clear the way for Robert Kraft to build a long-sought soccer stadium for the New England Revolution on a waterfront property in Everett.
Like the House’s version, the bill does not include a suspension of the state’s gas tax, a provision pushed by many Republicans and business groups.
The Senate is expected to take up the legislation Thursday. Assuming it passes, leaders from both chambers will then hash out the details to reach a compromise to send to Governor Charlie Baker, who can sign it, veto it, or veto certain sections of it, among other options.