Senate votes to increase state’s earned income tax credit

Baker, Senate split on covering cost

State senators voted Tuesday afternoon to expand a tax credit that benefits hundreds of thousands of low-income workers and quickly found themselves in a standoff with Governor Charlie Baker over how to pay for it.

The Senate legislation, which would increase the state’s earned income tax credit by half, would pay for the move by freezing in place the state’s income tax, which is otherwise expected to decline from 5.15 percent to 5.1 percent in January.

Proponents said the move would effectively shift the benefit of state tax cuts from the wealthy to working families, striking a small blow against income inequality.

“It’s about rewarding work and not just rewarding wealth,” said state Senator Ben Downing, a Pittsfield Democrat and coauthor of the bill, in a floor speech.

Baker, a Republican, put the earned income tax credit on the agenda in March when he proposed doubling it and paying for the measure, in part, by eliminating the state’s controversial film tax credit.

On Tuesday afternoon, the administration stuck by that approach. Lizzy Guyton, a spokeswoman for the governor, said Baker wants to pay for the expansion “by phasing out subsidies for Hollywood movie producers” rather than freezing the income tax in place.

On the Senate floor, Republican lawmakers offered their own objections, arguing that the freeze would thwart the will of the voters, who approved a reduction in state income taxes in 2000 that was later slowed down — but not eliminated — by the Legislature.

Minority leader Bruce Tarr said the Senate “had the chance to keep faith, had the chance to honor the law, had the chance to honor the voters,” but seemed more interested in redistributing wealth.

The Senate measure, an amendment to the $38 billion budget the chamber is weighing, does include a tax benefit for the broader public — increasing the standard personal exemption taxpayers can claim.

For single taxpayers, for instance, the exemption would jump from $4,400 to $4,800. For a married couple filing jointly, the exemption would increase from $8,800 to $9,600.

An analysis by the left-leaning Massachusetts Budget and Policy Center shows the mix of tax changes approved by the state Senate — freezing the income tax, increasing the earned income tax credit, and bumping up the personal exemptions — would have a relatively modest impact on most taxpayers when compared with the alternative: allowing the state income tax rate to decline, as expected, from 5.15 to 5.1 percent next year under a formula designed to eventually bring the rate down to 5 percent.

The analysis shows that the average taxpayer earning $23,000 to $47,000 would see a tax cut of $41 for the 2016 tax year, while the average filer earning $127,000 to $276,000 would pay $31 more.

Noah Berger, president of MassBudget, said the Senate proposal is worthwhile, despite relatively modest effects. “For low-income folks, a $40 or $50 tax cut can matter,” he said. “It can be helping to pay a month’s rent or [it can] put food on the table for a few days.”

Berger added the average benefit is depressed because some low-income people do not qualify for the tax credit.

Looked at in isolation, the average earned income tax recipient’s benefit would increase from $315 to $470 under the legislation, according to figures provided by Senate President Stanley C. Rosenberg’s office.

The ultimate fate of the legislation is uncertain, given Baker’s opposition. House Speaker Robert A. DeLeo’s office declined to comment Tuesday. But he has disputed the Senate’s right to attach tax measures of any kind to the budget.

The state Constitution says all “money bills” must originate in the House of Representatives. The Senate maintains that, because the House version of the budget included an alteration to a tax credit, that opened the door for the Senate to weigh changes to tax policy.