For more than a year, Massachusetts taxpayers facing rising housing costs and increases in the price of just about everything, from eggs and milk to their utility bills, have been waiting for the tax breaks they were promised.
Governor Maura Healey was quick to pick up the tax relief ball in February, offering her own $742 million package of cuts aimed at benefitting families and boosting the state’s competitiveness. The House, taking up that theme, opted for a more cautious approach by phasing in some of the tax breaks and offering a more modest exemption on estate taxes but served up a generous package that at the end of four years would put some $1.1 billion back in the pockets of taxpayers annually.
The Senate followed, with a substantially less generous package overall — totaling about $590 million in its first and subsequent years but also including some small tax benefits aimed at incentivizing housing opportunities and production.
Now the real work begins — all of it behind closed doors on Beacon Hill — as six lawmakers, including the chairmen of the House and Senate Ways and Means Committees, thrash out a final product. The outcome will impact family budgets and this state’s economic future for years to come.
“We think you can have an inclusionary tax relief proposal and still stay within that $600 million envelope for fiscal 2024,” said Doug Howgate, president of the Massachusetts Taxpayers Foundation, previewing the theme of a report the group is scheduled to issue later this week.
A package that includes the best of the House’s efforts to address the state’s outlier status on the estate tax and short-term capital gains taxes, while adopting some of the Senate’s housing-related proposals — including an increase to the Housing Development Incentive Program (included in Healey’s bill) and an increase in the annual authorization for the low-income housing tax credit — looks like the basis for a meaningful bill.
The Senate’s more cautious approach just wouldn’t solve the problems Healey identified. As an earlier Massachusetts Taxpayers Foundation analysis also noted about the Senate tax package, “Its exclusion of capital gains tax reform and more limited estate tax and child and dependent tax credit relief undercuts its ability to meet two key goals: promote Massachusetts’ competitiveness and address high costs of living.”
Massachusetts is one of only three states in the nation (the others are Wisconsin and South Carolina) that tax short-term capital gains at a higher rate than long-term gains. Here, assets held for less than a year are taxed at 12 percent compared to 5 percent for other income. Healey and the House saw the wisdom in leveling that playing field — the House phasing the change in over three years.
The House approach on raising the exemption on the estate tax (keeping in mind that Massachusetts is one of only 12 states that actually levy an estate tax) to $2 million and doing away with the so-called cliff effect (taxing the entire estate from $1 if it exceeds the current $1 million exemption) is preferable to the Senate’s use of a tax credit but ought not to be a deal-breaker in talks.
What could — and should — be a deal-breaker is the Senate’s proposal to change the rules of the game on how the so-called millionaires tax is implemented by essentially creating more millionaires.
An amendment, proposed by Senator Jason Lewis and added during Senate debate on the bill, would require married couples who file a joint federal tax return to also file a joint state tax return.
Lewis insisted to his Senate colleagues that it was simply closing a “loophole” in the voter-approved surtax law.
Nonsense. Voters were told, just a few months ago, that the tax was to be applied to individuals. Fair Share Massachusetts, which backed the proposal, said on its campaign website, “Only the wealthiest Massachusetts residents — individuals who earn MORE THAN $1 million per year — will pay more.” The definition of individual hasn’t changed, unless Lewis knows something we don’t.
Even if the proposal didn’t amount to breaking faith with voters, it would be premature without seeing how the new surtax plays out. “We don’t think that it makes sense six months after passing this law to opt to expand it,” said Howgate; his is one of several business-backed groups raising objections to the move. House Revenue Committee Chairman Mark Cusack has demanded real numbers on its impact from the state’s Revenue Department, telling State House News Service, “You can’t dismiss it as a small thing or a loophole to close.”
More broadly, a bill aimed at providing tax relief ought to stick to that basic premise. It ought to balance the needs of working families who today spend too much of their income on child care, low-income seniors who simply want to stay in their homes, and renters squeezed by rising costs, with the needs of this state to keep and attract high earners.
Cusack has promised to have a bill on the governor’s desk this summer. Taxpayers have waited long enough.
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