In crafting a tax relief package for uncertain times, the Massachusetts Senate has put a premium on fiscal prudence.
Senate leaders on Thursday released an almost $600 million combination of tax credits, deductions, and cuts that seeks to shore up the economy by making the state a more affordable place to live — and a somewhat cheaper place to die.
The plan that emerged from the Senate Ways and Means Committee is significantly skimpier than the $1 billion package passed by the House last month. The chamber disregarded or downsized proposals backed by Governor Maura Healey and business groups that would have sacrificed more in state revenues.
“There’s a lot the Senate’s tax package shares with the House’s,” the Globe’s Matt Stout, who covers the State House, told me. “But it’s far smaller . . . and Senate leaders made very clear that they have different ideas of where relief should be focused.”
The reaction from business groups was polite but decidedly “meh.”
“There’s a lot of good in here,” said James Rooney, chief executive of the Greater Boston Chamber of Commerce. “But we do have to continue to roll up our sleeves and work to make sure Massachusetts is more business friendly.”
The Legislature is responding to concern that Massachusetts is losing its competitive edge over states such as New Hampshire and Florida, where living costs and taxes are lower.
While the tipping point was voters’ approval of the “millionaire’s tax” in November, pressure on lawmakers had already been mounting amid accelerating outmigration, a housing shortage, and the state’s outlier policies on estate and investment taxes.
A key sticking point: how much to cut taxes for the wealthy and businesses.
Healey got the ball rolling in February with a set of changes that would cost $1 billion a year when fully implemented.
The centerpiece of her plan is the merging of two existing tax credits into one that gives families $600 for each child, dependent with disabilities, or senior dependent.
The House incorporated that and some of her other measures into its own package. Now that the Senate has weighed in, it’s a good time to compare the main elements of the two approaches.
The House and Senate each want to double the tax credit for seniors who rent or own in Massachusetts to $2,400 and raise the deduction for renters from $3,000 to $4,000. But the Senate also proposed lifting the cap on a tax exemption created to encourage housing construction and expanding the annual amount available for a low-income housing tax credit by $20 million.
“Our tax relief package intentionally targets housing affordability so we can not only maintain our economic competitiveness but ensure our residents can stay where they want to work, live, raise families and pursue their dreams,” Senate President Karen E. Spilka said in a statement.
Tax cuts for the wealthy
Massachusetts is one of 12 states with an estate tax, and the combination of its steep rates and low threshold makes it particularly costly.
Under the Senate plan, the tax would kick in for estates valued at $2 million and above, up from $1 million currently. While the entire value of nonexempt estates would continue to be taxed, the provision would grant them a $99,600 credit against the bill.
The House also wants to raise the threshold to $2 million, but the tax would apply only above that cutoff.
The two chambers also diverged on taxes on short-term investment profits.
The House adopted a Healey proposal to cut the levy on the sale of assets held for less than a year from 12 percent 5 percent, which is much closer to rates in other states.
The Senate left the short-term capital gains rate unchanged.
That, as well as the more modest change to estate taxes, disappointed business leaders and others who argue that the high rates encourage residents to decamp for other states.
“Leaving short-term capital gains at 12 percent is something we need to fix,” said Doug Howgate, president of the Massachusetts Taxpayers Foundation.
But the Senate’s parsimony on these issues was praised by the Massachusetts Budget and Policy Center, a think tank that advocates for racial and economic justice.
Reducing taxes on estates and short-term capital gains would widen wealth inequality in the state by “leaving less money to invest elsewhere,” said Marie-Frances Rivera, the organization’s president.
Girding for problems
According to my colleague Matt, the Senate’s fiscally conservative approach reflects a revenue picture that has deteriorated in recent months amid a drop in tax revenues and the possibility that the state will have to reimburse the US Department of Labor for using $2.5 billion in federal money to pay state jobless benefits.
The unsteady fiscal picture was a “substantial consideration” in the Senate’s version, Senator Susan L. Moran, co-chair of the Legislature’s revenue committee, told Matt.
In other words, when in doubt, modesty might be the best tax policy.