Can a governor make a state’s economy more competitive?
Governor Maura Healey sure thinks so. And she made that case to a packed room of Greater Boston Chamber of Commerce members on Thursday, the day after she filed her first state budget proposal and a tax reform package with the Legislature.
Healey’s tax plan, when fully implemented, will cost the state about $1 billion a year. Roughly 40 percent will cover a reduction in the state’s short-term capital gains tax and as well as broader estate tax exemptions. The business community has pushed for both proposals, and cheered their inclusion in her tax plan. But many business leaders say more needs to be done, particularly with the arrival this year of the so-called millionaires tax on high earners and the domestic out-migration of more than 100,000 people since the start of the COVID-19 pandemic.
Healey argued that state lawmakers should change the short-term capital gains and estate taxes because Massachusetts is such an outlier on both fronts.
Her plan would reduce the tax rate on investments held for less than a year from 12 percent to 5 percent, bringing it in line with the state’s taxes on long-term capital gains and personal income. Only two other states, Healey told the chamber, tax short-term gains at a higher rate than long-term gains. Meanwhile, she would offer a credit that would essentially raise the threshold for the estate tax from $1 million to $3 million; she noted only one other state has such a low threshold, and most states have no estate tax at all.
Healey sounded many of the same notes with the chamber that she did in a speech she gave to Associated Industries of Massachusetts in January. Only this time, she had specific tax and budget proposals to talk about. She again made references to her basketball playing days, introducing her Cabinet by saying “my team is your team” and vowing to channel the competitive spirit that made her a force on the parquet in her younger years.
“Yes, I am a competitor. I hung it up a long time ago ... but I remain a competitor,” Healey told the crowd of roughly 750 people at the Westin Copley Place hotel. “No one is going to compete harder as your governor than me, I promise you. We’ve got to make sure we’re competitive with other states.”
But Healey said becoming more competitive isn’t just about tax policy. It’s also about addressing the high cost of living. Toward that end, she pointed to some of her other proposals such as boosting tax credits for dependent care and tax deductions for renters, and subsidies for community college and UMass tuition.
“We’re not leading when it comes to affordability, and we really need to change that,” Healey said. “Too many other states are passing us by, and it hurts our ability to compete.”
The Democratic governor’s embrace of the business-backed capital gains and estate tax reforms has come under fire this week by left-leaning groups.
“We’re going to get to the point in this budget process where people are going to be making hard choices [and not] investing as much in child care, housing, transportation and other things that they want to,” said Phineas Baxandall, policy director at the Massachusetts Budget & Policy Center think tank. “Part of the reason for that is that there are these large cuts being given to the wealthiest families in the Commonwealth.”
But business lobbyists counter that these reforms could help stem out-migration caused by the new income tax surcharge, also known as Question 1.
“We know that in the wake of the passage of Question 1, we need tax relief to help support our businesses,” said Brooke Thomson, executive vice president at Associated Industries of Massachusetts. “The inclusion of both the estate tax relief and the short-term capital gains tax sends a very good signal that the administration recognizes that those are two areas in particular where Massachusetts is an outlier.”
For many business groups, the Healey budget is a good first step. They appreciate Healey’s approach, particularly when legislative leaders rebuffed a similar capital gains tax cut last year. (Lawmakers were more accepting of an estate tax change, but did not pass a final version before time ran out.)
That said, these groups are eager for the administration and Legislature to take bolder steps to improve the state’s competitive position.
Chris Anderson, president of the Massachusetts High Technology Council, said he would like more estate tax relief than what Healey proposed, as well as tax breaks that directly help employers, such as bigger research and development tax credits. And Jim Rooney, chief executive of the Greater Boston Chamber, wants to help so-called one-time millionaires by exempting people who sell a business or home from state capital gains taxes, and thus allowing them to avoid getting hit with the new voter-approved surcharge.
Speaking with Healey after her speech at the chamber event, Rooney didn’t detail the various other tax proposals that the chamber is pushing. But Rooney did ask how Healey plans to further address employer costs and other proposals to improve the state’s business climate.
Healey indicated she realizes what’s at stake, and that she’ll keep an open door -- and an open mind.
“This is the start of a conversation,” she said. “This administration remains open to a dialogue, of course, with our colleagues in the Legislature but also with all of you. I don’t want to see people going to Texas — I mean, Austin’s cool but whatever — or Florida. ... But this is the dynamic right now.”
Will it continue? That remains to be seen.