Moving to fulfill a central campaign promise, Governor Maura Healey unveiled a nearly $1 billion tax code overhaul on Monday with savings geared to benefit low- and moderate-income residents and appease the business community.
The expansive proposal, which would reshape more than a dozen existing tax credits or incentives, sparked cheers from the business community and criticism from some Democrats and progressive groups, who slammed particular elements as a giveaway to the state’s wealthiest residents.
Healey plans to file the tax legislation alongside her first state budget plan on Wednesday.
Budget officials said that the plan would reduce tax revenue by $859 million in the fiscal year that starts July 1. In the future it could cost closer to $1 billion annually when changes to the estate tax are in effect for a full year.
In many instances, Healey’s proposal hews closely to legislation her Republican predecessor, Charlie Baker, first pushed a year ago; that proposal ultimately died in the Democrat-dominated Legislature, which must approve all tax changes. Even now, some legislative leaders appear hesitant about voluntarily curtailing tax revenue, given looming economic uncertainty.
“We have to acknowledge there are some aspects of our current tax system that make Massachusetts an outlier,” Healey said at a news conference. “When we don’t keep up with other states, we put our competitiveness at risk.”
The Cambridge Democrat’s ability to push her tax proposal into law offers an early big test of her administration after she campaigned heavily on easing the financial burden on taxpayers. Her focus on affordability comes as tens of thousands of people are fleeing high-cost Massachusetts to live in New Hampshire, Florida, and elsewhere.
Flanked by a single mother and a woman responsible for taking care of her elderly father, Healey said her plan aims to put money into more peoples’ pockets and attract more people and businesses to the state.
“Everywhere we go, the lieutenant governor and I hear about the cost of living and how it’s impacting communities and how it’s skyrocketing past people,” Healey said at the event, which was held at the Lynn YMCA.
The biggest item is a new child and family tax credit that Healey pitched last year as a candidate. The plan would combine two existing tax credits into one and give Massachusetts families $600 per child, dependent with disabilities, or senior dependent, with no limits to how many children or dependents they can claim — a change that could cost $458 million while helping about 700,000 taxpayers.
Under current rules, residents can claim only one of the existing two credits, and only for up to two dependents.
Healey’s plan also would allow some 880,000 residents to deduct up to $4,000 on what they pay on rent, up from $3,000. And her plan would double the maximum credit that low-income seniors can claim to offset property taxes from $1,200 to $2,400, something Baker first proposed a year ago.
Monday’s announcement revealed a split among policy-watchers: those who quickly embraced the proposal and those who were quick to criticize some of its elements, particularly those Baker pursued last year.
Healey is seeking to cut the tax rate on short-term capital gains — profits on investments held for up to a year — from 12 percent to 5 percent, saving taxpayers $117 million next fiscal year. Business leaders have lobbied for that change, but it fell flat last year in the Legislature after progressive Democrats criticized it as favoring the state’s wealthier residents.
Healey is also reviving a push to reshape Massachusetts estate tax. Her plan would eliminate the tax on estates valued at $3 million or less by offering a tax credit of up to $182,000. Just 12 states, plus Washington, D.C., tax estates after death, according to the AARP. Massachusetts, along with Oregon, has the lowest estate tax threshold in the country.
Healey’s proposal would save taxpayers $167 million this year and $275 million in fiscal 2024, and is designed to ease the burden on smaller estates that historically have filed more than 70 percent of estate tax returns.
The move, Healey said, would address a dynamic that puts the state’s “competitiveness at risk.”
Progressive groups and lawmakers railed against the estate tax and capital gains tax breaks, expressing concerns that they might do little or nothing to help low- and middle-class residents.
Raise Up Massachusetts, the union-backed coalition that pushed for the so-called millionaires tax approved by voters last fall, issued a statement saying the estate tax changes would give “a few thousand of the wealthiest families” a six-figure tax cut, while the short-term capital gains change would “reward wealthy day traders and real estate speculators.”
Business leaders have long pushed the state to rework the estate tax, arguing it can be an important factor when wealthy individuals and business owners decide which state they will call home.
The millionaires tax, which this year increased the state’s 5 percent income tax rate to 9 percent on annual income exceeding $1 million, is unpopular among many in the business community, with opponents pressing Beacon Hill to find other ways to make Massachusetts more tax-friendly.
Healey supported the millionaires tax but has struck a business-friendly tone since her election, vowing in her inaugural speech that her administration would be “partners” with business leaders.
Her office appeared to move quickly to marshal support for the tax package, releasing statements of support from about a half-dozen business and industry leaders.
Business leaders generally seemed pleased with Monday’s news, even if the governor opted against getting behind a new proposal that would directly offset consequences of the millionaires tax.
“We’re inclined to play the long game,” said Jim Rooney, chief executive of the Greater Boston Chamber of Commerce, who said he remained hopeful that discussions can continue on Beacon Hill.
The Chamber is seeking to exclude sales of homes and businesses from the capital gains tax, if they are held for a certain period of time.
Doug Howgate, president of the business-backed Massachusetts Taxpayers Foundation, noted that paring the short-term capital gains tax will still help address some of the impact from the millionaires tax.
“Nothing we’re talking about in the tax code . . . is going to be a silver bullet in terms of the challenges we face,” he said. “I do think it’s a strong first step.”
Whether lawmakers will buy into all, or even some, of Healey’s plan is unclear.
Senate president Karen E. Spilka and House Speaker Ronald J. Mariano discussed the proposal, among other items, during a regular meeting with Healey on Monday. Mariano said that although he was reluctant to embrace too many changes in the tax code under Baker, he was open to new proposals.
“The decisions we make are going to be based on how we view the economy going forward . . . and what can benefit the most folks that we represent,” he said.
Spilka, who has for years supported pursuing a tax code overhaul, said she was “very pleased at the proposal offered by the governor,” and hopes some of the tax proposals her chamber has offered are considered this year.
Increasing the earned income tax credit, which Healey did not include in her proposal, is one item Spilka said she would continue to consider.
“Research shows that [earned income tax credits] are one of the best ways to get money in the pocket of low-income people,” Spilka said. “And then that money is turned around and comes right back into local economies.”
In addition to some of the major changes, Healey’s proposal also seeks to modify or create at least 10 other tax credit or incentive programs, moves that her office said would cost the state $17 million in revenue next year.
That includes increasing the $10 million annual cap on the state’s Housing Development Incentive Program to $50 million in the first year and $30 million every year afterward in a bid to push developers to create more market-rate housing in Gateway Cities, expanding which employers could qualify for an apprenticeship tax credit, and allowing taxpayers to take deductions on regional transit passes and bike-share memberships.
“We’re about listening to the needs of our residents and our communities,” Healey said. “We’re about centering those who disproportionately are impacted by these difficult economic times. And we’re about making good on our commitment to the people of Massachusetts.”
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