Facing a muddied revenue picture, Massachusetts Senate leaders on Thursday released details of a nearly $600 million tax package that dramatically scales back a House-approved plan, and omits a series of cuts pushed by Governor Maura Healey and business leaders.
The Senate’s initial plan, while similar in several ways, would cost roughly half the $1.1 billion tax bill that the Massachusetts House passed just weeks ago.
Notably, the Senate also excluded from its plan language to cut the tax rate on short-term capital gains — profits on investments held up to a year — from 12 percent to 5 percent. The business community has championed that change, and Healey and the House have likewise embraced it in a bid to align Massachusetts with other states.
But the capital gains cut has been criticized by progressive lawmakers as a handout to the state’s wealthiest residents. The Senate also did not include another business-backed initiative that the House passed to adjust how state corporate taxes are calculated.
“We focused on individuals and families, not on corporations,” said state Senator Michael J. Rodrigues, the chamber’s budget chief, in an interview.
Healey and legislative leaders have repeatedly emphasized the need to make Massachusetts a more attractive place to live and do business given its high cost of living and rising housing prices. An April UMass Amherst/WCVB poll found that nearly four in 10 Massachusetts residents have contemplated leaving the state for a more affordable locale. Roughly 110,000 actually did leave between April 2020 and July 2022.
To Senate leaders, a response means addressing “the major issues of concern — and that’s housing costs,” Rodrigues said. The Senate plan, unlike the House, would dramatically raise the cap on a tax exemption designed to help boost housing construction, while also raising the annual authorization on a low-income housing tax credit by $20 million.
Senate President Karen E. Spilka’s office previously promised a tax bill that would “center equity and chip away at the headwinds that threaten Massachusetts’ competitiveness.”
“The fact that our 25- to 40-year-olds are leaving the state, it’s not because of tax policy or they’re day-trading on Wall Street, and they have to pay capital gains tax,” Rodrigues said. “It’s because they can’t afford housing.”
To be sure, the Senate’s bill mirrors several aspects of what cleared the House. It would double the tax credit for seniors who rent or own in Massachusetts from $1,200 to $2,400, raise the deduction for renters from $3,000 to $4,000, and increase the state’s earned income tax credit — designed to help low-income families — from 30 percent to 40 percent of the federal credit.
Like the House, the Senate plan also would reshape the Massachusetts estate tax, considered among the strictest in the country, by raising the tax threshold from $1 million to $2 million. The Senate proposal also offers a credit to eliminate the so-called cliff effect of taxing an entire state once it passes the threshold.
The Senate’s bill includes another similar proposal to combine two existing tax credits — for child care and dependent care — into one. But it would allow taxpayers to claim $310 per dependent, roughly half of the $600 cap the House and Healey sought.
The Senate’s more modest approach — and overall price tag — reflects a revenue picture that has soured since Healey first unveiled her $1 billion proposal in February.
At $586 million, the proposal would cost roughly half of the plan pursued by the House, which passed language to phase in increased tax breaks over three years.
The state’s fiscal situation likely played a role. The House completed votes on its package just days before the state released data showing that tax revenue had cratered during April, falling nearly $2.2 billion below what the state collected in that month a year ago and leaving Massachusetts running hundreds of millions below projections for the year.
The state is also facing the potential of having to reimburse the federal government after a routine audit found that Massachusetts used $2.5 billion in federal money — when it should have used state funds — to pay benefits dating to 2020 during former governor Charlie Baker’s administration.
State tax revenues rebounded somewhat last month. But the unsteady fiscal picture was a “substantial consideration” in the Senate’s version, said state Senator Susan L. Moran, who co-chairs the Legislature’s revenue committee.
“Trends and predictions are great. But at this point in time, it makes sense to be on the conservative side of planning,” the Falmouth Democrat said.
The chamber is slated to debate the package on June 15.
The Senate plan received a cool reception in the business community. Doug Howgate, president of the business-backed Massachusetts Taxpayers Foundation, called it a “step back” as far as “talent retention, jobs, and investment.”
Several decisions, including scaling back the dependent tax credit, “undercut our collective ability to meet two key goals: promote Massachusetts’ competitiveness and address high costs of living,” Howgate said.
Brooke Thomson, executive vice president at Associated Industries of Massachusetts, said Healey and the House offered “more aggressive proposals that focus on growing the economy,” citing the capital gains cut as a critical piece.
“It sends a signal to the business community that this is where you want to stay, this is where you want to expand,” she said.
The housing-focused initiatives will likely feature prominently in negotiations with House leaders later this month.
Specifically, the Senate plan would increase the cap on credits awarded to developers through the Housing Development Incentive Program, or “HDIP” from $10 million to $57 million in the first year. The increase would be for the next fiscal year, and then would return to a slightly lower but still increased cap of $30 million.
Housing advocates have long pushed for an expansion of the program, which they cite as one way to incentivize developers to build housing in communities that need it the most.
“It’s an incredibly powerful tool,” said Jay Ash, housing and economic development secretary under Baker and, who, as the former Chelsea city manager, oversaw the second-ever HDIP project, now known as “The Box District.” He said once the project went up, other developers had an easier time getting loans and creating projects in the area.
“It transformed a place that when I was growing up, my mother wouldn’t let me go,” Ash said.
Progressive Democrats, however, worry that a focus on market-rate housing takes away from investments in affordable housing aimed at the state’s neediest residents. Groups like the Massachusetts Law Reform Institute have said the program needs more oversight, and that too many HDIP developments are catered toward “hot market areas” instead of communities in need of public support.
“We are going to have a lot of housing that most working-class people can’t afford,” said state Senator Jamie Eldridge, a Marlborough Democrat, who filed a bill that would require HDIP projects to make at least 20 percent of the units affordable.
Jon Chesto of the Globe staff contributed to this report.