It’s raining money on Beacon Hill, with unexpectedly high revenue streaming in from all manner of taxes. Now, because of an obscure 1986 law, the state is poised to send some of that back to residents. But unless the Baker administration gives the Legislature time to revise the law, the money will go back in an unfair way that stiffs the state’s poorest residents.
We all pay state taxes: sales taxes, gas taxes, and of course, the income tax. Under the 1986 law, the result of an ill-advised ballot question, when the state collects more tax revenue than allowed, it must send it back. The law has only been triggered once before, and only for a relatively small excess of $29.2 million; this time, there’s nearly $3 billion to send back to taxpayers.
So who gets what? The Baker administration proposes to direct-deposit refunds to taxpayers; following the law, the exact amount taxpayers receive will be in proportion to what they paid in income tax. Under the terms of the 1986 law, the state will make no effort to factor in the other types of state taxes residents paid, even though unexpectedly high sales and gas tax receipts are one reason the state has such a surplus to begin with.
But because poor people tend to pay a greater percentage of their overall tax burden in those taxes, while sometimes paying no income tax, the refunds will have a regressive impact.
The biggest beneficiaries of this tax rebate scheme will be the state’s wealthiest households; the poorest residents stand to get nothing. In fact, according to the Massachusetts Budget and Policy Center, households that make over $1 million could receive over $28,000, while the bottom 20 percent of households could get a rebate as low as a paltry $9. A little more than half of people making under $25,000 will not receive any relief at all.
This outcome would be a major fiscal policy failure on the part of the Legislature. Since when is it a good idea to send billions of dollars primarily to wealthy residents when both a recession and budget shortfalls are in the forecast? The good news is that it doesn’t have to be this way. State Representative Mike Connolly introduced legislation that would cap the tax credits at $6,500 for the wealthiest households, allowing the state to more fairly redistribute the $3 billion among the rest of Massachusetts’ taxpayers.
But time is growing short. Last month, Governor Charlie Baker announced that millions of residents will start seeing refund checks or direct deposits in November, and as soon as that happens, it’ll be too late to adjust how the rebates are calculated and distributed. But while Connolly’s legislation faces an uphill battle, there’s no reason for it to be constrained by the timeline Baker imposed.
In fact, some legal experts have raised questions about whether Baker’s method of distributing the rebate actually complies with the state constitution. The law requires that residents would be given a tax credit when they file taxes next year rather than a direct cash payment, as Baker plans. The reason that potentially poses a problem is that a direct cash payment can, in legal terms, be viewed as an appropriation rather than a credit, and only the Legislature is authorized to appropriate state funds. Indeed, the Supreme Judicial Court upheld the law in 1987 because it established a tax credit and did not appropriate money.
The Baker administration ought to stop these checks from going out next month and allow the Legislature to consider Connolly’s bill. After all, if Baker had not created the unprecedented refund check plan, then residents would have only seen the credits on their 2022 tax forms next year — as they did the last time the law was triggered. There’s no reason to rush the process now.
What the governor and lawmakers on Beacon Hill should take into account is that the reason that this tax law was triggered this time around was not because Massachusetts raised taxes at a higher rate than wage and salary growth — something that this law intended to prevent. (State income taxes actually steadily declined for 20 years until they reached 5 percent in 2020.) Rather, more regressive taxes, like sales and gasoline taxes, have brought in higher revenue, and the bulk of the nearly $3 billion excess revenue — $2.25 billion, according to the state auditor — can already be claimed through other tax credits and deductions.
Unless the Legislature changes the law, the result will be an absurdity. The poorest residents of Massachusetts might not pay income tax, but the tax they pay on the goods and services they purchase will be added to the pot of money that will now be redistributed to people far wealthier than them. With high inflation and a looming recession, that’s not only unfair; it’s reckless policy. And what voters should know is that both the governor and the Legislature can do something about it if they actually wanted to.
Correction: An earlier version of this editorial misstated the findings of a study on the impact of a proposed Massachusetts tax rebate on low-income tax filers. The study by the Massachusetts Budget and Policy Center found that just over half of filers with incomes under $25,000 would not receive a credit.
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