House leaders on Tuesday unveiled a $1 billion-plus tax relief plan they say would improve the state’s competitiveness, echoing much of what Governor Maura Healey recently pitched in her tax proposal.
The House plan would cost $654 million in the first year and nearly $1.1 billion once it takes full effect in three years, compared with Healey’s $1 billion proposal. Both proposals would, among other things, boost tax breaks for renters, families, and seniors. They would also overhaul estate and capital gains taxes. The House bill also would revise a 1986 tax cap law that caught lawmakers by surprise last year when it triggered $3 billion in refunds to taxpayers.
The House intends to move quickly, with a floor vote expected Thursday, according to Speaker Ronald J. Mariano. The House and Senate tried last year to pass a tax overhaul bill but ran out of time. This new proposal reflects many of the House’s previous priorities but also includes two new business-friendly items: the capital gains tax cut and a change to how corporate taxes are calculated.
Mariano expressed concern about the out-migration in Massachusetts, with more than 110,000 leaving for other states since early 2020.
“Let’s hope that it makes us more competitive,” he told reporters shortly after announcing the plan Tuesday. “And that people will hesitate before they think about moving.”
For her part, Healey said it’s too early for her to opine about the House proposal. “I’m glad to see there is a tax relief proposal out there,” she said. “We will continue to be in conversations with the House and the Senate on all of this.”
The plan could set up a potential debate with the Senate, which has not yet unveiled its own tax package. Through a spokesperson, the chamber’s budget chief Michael Rodrigues declined to comment on the House legislation or provide a timeline for when its bill will be unveiled.
Here’s a rundown of the key elements:
Child and dependent tax credit
As with Healey’s plan, the House proposal would combine two existing tax credits — child care and dependent care — to create one $600 credit per dependent, while eliminating the current cap.
The House says the tax credit would help more than 700,000 Massachusetts families. It’s an idea first pitched by Healey during her gubernatorial campaign. The House proposes phasing the new credit in over three years instead of offering the full $600 per dependent the first year — a divergence from the governor’s proposal.
Under the House plan, taxpayers could claim $310 per dependent in the next fiscal year, $455 the year after, and $600 in the year after that.
The House’s bill pitches raising the estate tax threshold from $1 million to $2 million and would tax only the value of an estate that exceeds $2 million, and not the entire estate as the law currently requires. Only one other state, Oregon, has a threshold as low as $1 million for the estate tax, and Oregon only taxes the values above that amount. That makes Massachusetts’ estate tax the most stringent in the country.
Healey’s plan, meanwhile, would effectively eliminate the tax on estates valued at up to $3 million, through a tax credit.
Short-term capital gains
The House is also 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 in two years.
During the first year, short-term capital gains would be taxed at 8 percent, before ultimately reaching 5 percent during year two.
Healey’s capital gains plan is similar but does not include the phased-in approach.
House leadership didn’t get behind the idea when former governor Charlie Baker proposed a similar tax cut last year. When asked by reporters what changed since then, Mariano answered: “The economy.”
“This whole competitiveness issue is real,” he said. “We want to attract investment. We want to attract folks to want to be here.”
Corporate tax cuts
The House proposal also includes a long-sought change by many business leaders: a switch in how state corporate taxes are calculated to what is known as the “single sales factor,” to line up with the way most states tax companies now. With some exceptions for certain industries, Massachusetts corporate tax is currently calculated using three factors: a company’s local employment, property holdings, and in-state sales.
The House would change the calculation to rely solely on the amount of a company’s sales within the state. This, they argue, would make the state more attractive to multistate companies and not penalize them for adding jobs or expanding facilities here. When fully phased in, this change is expected to cost nearly $80 million a year.
Tax credits for seniors, renters, and other provisions
Other changes proposed by the House include increasing the tax credit for seniors who rent or own in Massachusetts from $1,200 to $2,400, raising the deduction for renters from $3,000 to $4,000, and increasing the earned income tax credit from 30 percent to 40 percent of the federal credit. The first two of those increases are in Healey’s plan as well.
In addition to the proposed tax relief, the bill includes changes to what’s known as Chapter 62F, a nearly 40-year-old law that requires the state to return excess revenue to taxpayers when the state’s revenues exceed a predetermined cap. In 2022, the obscure law triggered nearly $3 billion in taxpayer refunds in 2022, one reason the tax relief package stalled out at the end of the Legislature’s formal session last July.
The current law stipulates that any credit is applied on a “proportional basis,” meaning the more someone owes in income taxes, the higher the refund they’re due. The House proposes adjusting the credit so that all taxpayers receive an equal amount and raising the cap to make it tougher to trigger refunds in the future.
Brooke Thomson, executive vice president at Associated Industries of Massachusetts, said she is happy to see House leaders reacting to concerns about the state’s economic competitiveness — particularly in light of the passage of Question 1 in November. That ballot question imposed the so-called millionaires tax, a new income tax surcharge on people who earn more than $1 million.
“This is sending a real signal that Massachusetts is ready and open for business,” Thomson said of the House plan.
“We’re seeing in the numbers that outmigration is a real challenge for Massachusetts, affordability is a real challenge,” said Doug Howgate, head of the business-backed Massachusetts Taxpayers Foundation. The House plan “is not going to solve all that ails us, but the individual components make sense.”
But the Massachusetts Budget & Policy Center, a left-leaning think tank, took issue with House leaders’ decision to offer more relief to the business community than they did in 2022. Phineas Baxandall, policy director at the think tank, said the corporate and capital gains tax cuts “overwhelmingly help higher income households.”
Representative Erika Uyterhoeven, a progressive Democrat from Somerville, echoed the sentiment. She said to be more competitive, the state should invest the $1.1 billion in public transportation, affordable housing, and efforts to combat climate change.
“Instead, some of these tax breaks are for the very wealthy or have minimal impact for many residents,” she said.