Massachusetts’ strong economy hasn’t helped everyone. The top one-percenters in the state make about 30 times as much as the bottom 99 percent. That’s why expanding policies like the earned income tax credit to fight such blatant income inequality should be a priority for state leaders, especially as the legislative session winds down.
Apparently not for Governor Baker, who reversed his initial support for a deal that would pay for an increase in the earned income tax credit with the so-called Airbnb tax. Sure, the governor is entitled to change his mind — and he’s hewing to his promise of no new taxes — but he had it right the first time. This is a missed opportunity to engage Airbnb — a prime player in the new sharing economy — and to lift up the state’s working poor.
The numbers behind a legislative deal are viable enough, and expanding the earned income tax credit is valuable enough, to make it work. The proposal includes applying an existing 5.7 percent hotel tax to short-term rentals booked on Airbnb and similar websites, such as HomeAway and VRBO.com. The tax would be charged to guests — a fee that local bed-and-breakfasts and hotels already charge. The money collected by the state would then be designated to pay an increase in the earned income credit from 23 to 28 percent, a move that would deliver as much as $300 extra to more than 400,000 families annually.
It was Senate President Stanley Rosenberg who came up with the creative legislative solution to marry both policies in a deal, which is tucked in the economic development bill now in conference committee. The earned income tax credit is a policy that’s widely recognized in helping to reduce poverty, so verifiably effective that Baker made a campaign promise of doubling it to 30 percent. Low- and moderate-income working families can claim the earned income credit when filing their taxes. The credit reduces the amount of taxes filers owe and could even get them a refund.
But in the current legislative environment, where both the governor and House Speaker Robert DeLeo are committed to a no-new-taxes policy to raise revenue, the deal has not been an easy sell. Never mind that Airbnb approves of the short-term rentals tax. And why wouldn’t they? They want to be regarded as good citizens. The company might also have calculated that the state would be less inclined to further regulate an emerging market in which it has a financial stake. What’s more, there are already 20 other states with taxes for short-term rentals, either statewide or locally.
The short-term rentals tax is expected to bring in an estimated $20 million, according to the state Department of Revenue, while increasing the earned income tax credit to 28 percent represents between $40 million to $50 million in forgone state revenue. But the state would have two years to fund the credit, since the first time that residents could apply for it would be in 2019, when filing their 2018 taxes.
As for Baker’s indiscriminate insistence on no new taxes, he should be reminded that the Airbnb tax is merely an extension of existing policy. “It’s not a new tax per se, it’s just a more equitable way to collect the tax,” said Senator Michael Rodrigues, cochairman of the Joint Revenue Committee.
He’s right. Credit should go to Rosenberg for recognizing how Beacon Hill can take meaningful action to resist the tide of growing income inequality. Now it’s up to Baker to live up to his campaign promise of doubling the earned income credit. The deal should be approved swiftly.