Expanding tax breaks for the poor was one of the biggest legislative priorities of Governor Charlie Baker and Senate President Stan Rosenberg last year.
They got a partial victory by delaying a corporate perk, freeing up money to increase the earned income tax credit. But this year, as another Legislative session neared its conclusion . . . well, crickets. Neither Baker nor Rosenberg offered a proposal to finish what they started in trying to double the EITC.
Then something finally happened this week. The Senate attached language to an economic development bill that would extend the state’s 5.7 percent hotel tax to short-term rentals on vacation homes and rooms rented through online companies like Airbnb.
The tax would generate about $16.7 million a year and would be used to expand the EITC, which cuts tax bills for families with an annual household income of under $53,000. That amounts to giving back as much as an extra $313 per filer, according to analysis by the left-leaning research group MassBudget.
The measure is expected to pass on Thursday, and then it will go to a conference committee to work out differences with the House’s economic bill.
Baker and House Speaker Bob DeLeo don’t like new taxes. But here’s why both should set aside their politics.
It’s the new economy, stupid.
Companies usually don’t like new levies, but not in this case because paying taxes is a sign of legitimacy. In a letter to legislators on Wednesday, Airbnb wrote how it couldn’t wait to pay “its fair share” of taxes, something it has done in seven other states and in nearly two dozen US cities.
It’s a good deal for Airbnb: The company can pass the cost onto consumers, and the state will leave other regulation up to local municipalities. Some cities, for example, may require Airbnb owners to get a permit or license before they list their properties.
The Massachusetts Municipal Association supports the new tax as well. The current law allows only the state and towns to collect taxes on hotels and motels. The Senate amendment would also allow towns to impose their own local tax on short-term rentals.
A bill to tax Airbnb and other similar companies has been making its way through the Legislature, but it has been stuck in a House committee. But when the House version of the economic development bill moved to the Senate last week, Senator Michael Rodrigues saw an opportunity to attach the Airbnb amendment. The Westport Democrat has wanted to level the playing field in the hospitality industry and make it easier to administer tax collection by getting the state involved.
As for what to do with the new-found money, Rodrigues, the co-chairman of the Revenue Committee, got his marching orders.
“The Senate president was very clear about it,” Rodrigues said. “Let’s dedicate this to EITC.”
Nearly half a million families in Massachusetts benefit from both the state and federal EITC, widely hailed as one of the most effective antipoverty policies out there. Currently, the state matches 23 percent of the federal EITC refund, up from 15 percent in the previous year. That means this year eligible families in the Commonwealth got as much as $500 more from the EITC.
The Senate is proposing to increase the match to 28 percent, as well as adding a state residency requirement to be eligible for the full benefit.
With those two changes, MassBudget estimates the expanded EITC would cost the state an extra $38 million a year. Even with the new tax and adjusting the residency rule, the state would still be about $21.3 million short in fully funding the new rate.
On that, the Senate is banking that the short-term rental business will grow significantly by the time the proposed tax kicks in starting in 2018. If not, there’s time to make another adjustment.
Last year Baker proposed to kill the controversial film tax credit and use that money to fund an expanded EITC. Rosenberg wanted to freeze the income tax rate. DeLeo didn’t like either plan. But the Big Three worked out a last-minute compromise.
Rosenberg’s real stroke of political genius this year is tying the new tax to a program that helps the working poor. It will be that much harder for Baker and DeLeo to just say no to new taxes.