Rep. Aaron Michlewitz (right) and Sen. Michael Rodrigues, the lead negotiators on a compromise tax relief package filed Tuesday, Sept. 26, 2023, answered reporters' questions about the consensus bill during a press conference in the Senate Reading Room. (SHNS)
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Mass. House-Senate Dems agree on more than $1 billion in tax relief; here is who benefits



Chris Lisinski, Sam Drysdale

STATE HOUSE, BOSTON, SEPT. 26, 2023…..The compromise tax reform package expected to win House and Senate approval this week combines relief for seniors, renters, caregivers and low-income families with a cut to the state’s short-term capital gains tax rate, estate tax reforms and changes to a pair of voter-approved tax policies that have been in the spotlight.

A six-member conference committee filed the sweeping accord (H 4104) at 2:32 p.m. Tuesday and its authors say it would provide about $561 million in relief in the current fiscal year, which began July 1, and more than $1 billion in relief by fiscal year 2027.

The final deal stands to cap off more than 18 months of debate and takes aim at a pair of issues that have been top of mind for policymakers: the increasingly unaffordable cost of living here, and a growing fear that Massachusetts is not competitive enough to attract the businesses and workers its economy needs.

Asked by reporters Tuesday if lawmakers think the compromise bill will land on Gov. Maura Healey’s desk by the end of the week, Senate President Karen Spilka and House Speaker Ron Mariano nodded ‘yes.’ The House vote is expected on Wednesday, and the Senate plans to consider the bill on Thursday.

Healey will get time to review the lengthy bill, but she has been encouraging lawmakers to reach a deal and made achieving tax relief a centerpiece of her campaign. She rebooted the latest round of debate by filing a roughly $1 billion bill in March.

“We need tax relief to make Massachusetts more affordable, more competitive and more equitable, and I am pleased to say we’re getting that,” Healey said during a GBH radio interview Tuesday. “I’m pleased to say we’re getting that. We’re getting that with this package, though I don’t know all the details.”

Family Focused Tax Credits

The package’s largest item, worth about $165 million this year and up to $307 million once fully implemented, is an overhauled child and dependent tax credit.

To relieve pressure on individual taxpayers, the package would more than double a tax credit available to parents and those who care for dependent seniors. That credit would rise from $180 per dependent to $310 per dependent in fiscal year 2023, then again to $440 per dependent in fiscal years 2024 and beyond.

The measure combines the existing Household Dependent Tax Credit and Dependent Care Tax Credit while removing a cap on dependents and increasing the total benefit.

More than 565,000 Massachusetts families would qualify for the credit, according to a bill summary.

Revenue Committee Co-chair Sen. Susan Moran said the credit, which she called “the most generous in the country,” would help attract and retain younger workers who want to raise families.

“It’s going to be fundamental to Massachusetts maintaining its lead in so many areas, whether it’s in, you know, biology sciences or climate sciences or manufacturing,” the Falmouth Democrat said in an interview.

Still, the $440 credit negotiators landed on is less than what Healey originally proposed when she made a $600 credit per dependent the centerpiece of a tax package she unveiled in March. The House had pitched a credit that would have gone up to $614 per child by FY27, and the Senate would have made the initial increase to $310 but did not include future incremental increases.

“It’s all a balancing game of what we can afford and what’s affordable, what’s sustainable,” Senate Ways and Means Chair Michael Rodrigues of Westport said. “Remember, the state did not even have a child and dependent tax credit until a couple of years ago. It was a child tax deduction that we switched to a tax credit. And those of us tax budget nerds know there’s a big difference between a tax deduction and a tax credit. And now with this proposal, we’re going to have the largest universal child and dependent tax credit in the country — something we’re very proud of.”

Rodrigues added that in the future, the Legislature could “address it again, as we have addressed this over the last handful of years.”

Other family-focused pieces of the final package revive measures both branches initially approved last year, before lawmakers retreated from targeted tax relief after realizing state tax collections had surged so high that the state owed nearly $3 billion in automatic taxpayer rebates.

The bill would increase the Earned Income Tax Credit that supports lower-income families from 30 percent to 40 percent of the federal credit, double and index to inflation the maximum senior circuit breaker tax credit, and increase the cap on the rental deduction from $3,000 to $4,000, according to the summary.

Business-Friendly Tax Reform

Negotiators included most of the tax code changes sought by business groups that were pitched as a way to reinvigorate the state’s competitiveness, particularly at a time when officials are concerned about a flow of residents decamping to states that are more affordable to live in.

The bill would provide a uniform estate tax credit of $99,600, which would effectively double the threshold at which the levy kicks in from $1 million to $2 million. Supporters have said the existing trigger is among the lowest in the country, making Massachusetts an outlier.

That change would cost $128 million in FY24 and $213 million by FY27, according to the summary.

At a State House press conference on the tax package, there was a lot of talk among legislative leaders about compromise — nearly two years after a tax package was first introduced under former Gov. Charlie Baker, and a long summer of House-Senate negotiations.

“We’re here to report that reports of the death of collaboration between the House and the Senate are greatly exaggerated,” House Ways and Means Chair Aaron Michlewitz quipped during the press conference.

Moran said negotiators had to grapple with a wide range of priorities and swirling economic forecasts as they crafted a final package.

“The economy was kind of like trying to catch a falling knife,” she said. “There were some predictions about where the numbers were going to fall, and I think really, we’ve gotten a tremendous amount of optimism about the Massachusetts economy moving forward now that we’re giving businesses the tools like housing for their workers, which we heard over and over again was the chief need.”

Among other major differences in the House and Senate plans, the Senate had omitted a series of tax cuts that Healey and the House had pitched as business-friendly, to improve Massachusetts’ status in competing for businesses to make a home in the state.

Among them was the governor and House’s pitch to slash short-term capital gains, which stem from the sale of assets held for a year or less, from 12 percent to 5 percent. Senators preferred not to touch the existing 12 percent rate.

Democrats have been divided on how to approach that reform, and landed on a compromise of reducing the tax to 8.5 percent.

“We also heard loudly and clearly from our friends in the House that they wanted to see a reduction in capital gains tax, so we did that, and it landed somewhere in the middle,” Rodrigues said.

A cost breakdown estimated the short-term capital gains tax cut will carry a total price tag of $42 million in FY24 and $49 million in FY27. In an analysis of the package, the Massachusetts Taxpayers Foundation estimated the revenue loss from the capital gains tax rate reduction would impact money set to be deposited into the state’s long-term savings rather than money that could be spent directly in an annual budget.

Another change aimed at businesses would overhaul how Massachusetts calculates taxes owed by multistate companies. Currently, the apportionment system factors in property, payroll and sales, and the bill would replace that with a simplified version that uses only a company’s sales. Supporters have suggested the update would encourage more companies to base their headquarters in Massachusetts.

Brooke Thomson, president of Associated Industries of Massachusetts, called the changes “pro-growth policies.”

“At a time when the cost of living in Massachusetts exceeds that of most other states, this package wisely identifies ways to help cut costs for working families, support our businesses, boost housing supply, and address outliers in the tax code. Reducing the short-term capital gains rate was one of AIM’s top priorities for the legislative session, and we strongly support this and other necessary reforms included in the bill,” Thomson said in a statement.

Harris Gruman, executive director of the SEIU Massachusetts State Council and member of the Raise Up Coalition, said the progressive group sees the sales factor apportionment reform as “an unnecessary break,” but added that the change and the reduction in short-term capital gains were “at least … on topic with the question of business competitiveness.”

“I think that that is an appropriate response,” Gruman said. “I mean, that hopefully satisfies the people who are complaining about it, while it at least satisfies us that it’s not a big giveaway all at once.”

Policy Changes

While legislative leaders move to reduce the tax burden many residents and businesses face, the Democrats will also embark on a controversial effort to reshape a pair of voter-approved tax laws.

The conference committee accord would change Chapter 62F, the 1986 initiative petition law that caps the amount of tax revenue state government can collect each year and requires taxpayers to be reimbursed for any overage.

Under the current iteration of the law, Massachusetts must return excess tax revenue in proportion to what each taxpayer paid. Last year, when Beacon Hill owed nearly $3 billion back to residents, the highest-earning Bay Staters got rebate checks for thousands or tens of thousands of dollars and lower-earning taxpayers received a few hundred dollars or less.

The bill would replace the proportional system with an equal payment for every single taxpayer if Chapter 62F were triggered again, regardless of how much they paid in taxes that year.

“We wanted to provide something that was a little more balanced, a little more equitable across the board,” Michlewitz said. “The folks that need it the most are the ones that are going to, you know, that would rely on something like this, and so, to make it kind of an even board was important to us. Whenever this ever does get triggered again, if it ever gets triggered again in our lifetime.”

The tax package would also require married taxpayers who file a joint return with the federal government to file a joint return at the state level as well.

Lawmakers and their allies who backed the new 4 percent surtax on personal income above $1 million, which voters approved in November, have warned that married couples who together earn more than $1 million could avoid triggering the surtax by filing individual returns. The Massachusetts Budget and Policy Center estimated that high-income households using that maneuver could cut the state’s annual surtax revenue between $200 million and $600 million.

The bill summary said the joint-filing requirement, which was favored by the Senate, would be “subject to exemptions or adjustments promulgated by the department of revenue.”

Gruman said he saw this change as the most significant piece of the tax relief bill.

“The Department of Revenue estimated that it could be over half a billion dollars a year of the revenue that voters passed to be used for schools and transportation,” he said. “So this is very significant that that message was heard and understood and supported by the Legislature. We’re very grateful for that.”

Asked Tuesday why the ballot question that created the surtax last year was written in a way that allowed single-filers, Rodrigues said it was an “unintended consequence.”

“Legislation filed and passed by referendum, you see, oftentimes, unintended consequences that it really hasn’t been thought out to the degree that we think things out as we pass legislation through the normal process,” Rodrigues said. “Whether it was the cannabis law or any law, we go back and we tinker with it, we amend it so that it is workable and fair and equitable.”

The right-leaning Massachusetts Fiscal Alliance contended Tuesday that the proposed changes to 62F and tax-filing procedures are such dramatic steps that they outweigh any potential benefits from relief.

“Speaker Ron Mariano and Senate President Karen Spilka’s proposal includes poison pills which puts Massachusetts at odds with nearly 70 percent of the states that have a graduated state income tax like Massachusetts,” said MassFiscal spokesperson Paul Craney. “How does further taxing married couples achieve tax relief for Massachusetts or make us more economically competitive? How can Massachusetts try to keep taxpayers here or attract new taxpayers when they can easily move to New Hampshire or Florida and not pay any state income taxes and not be penalized by the state for being married?”

Additional Tax Code Changes

Other changes in the compromise bill aim to incentivize new housing production by expanding the Housing Development Incentive Program, which would rise from $10 million to $57 million in the first year and then settle at $30 million annually thereafter, and increasing the annual authorization for the Low Income Housing Tax Credit from $40 million to $60 million.

Moran said those changes are a “sign of the times,” pointing to a statewide housing inventory shortage that has sent prices skyrocketing.

“People say, ‘Oh, why are we giving money to builders? They are generally pretty well off.’ Well, the reason is they have choices and they can build where they want to build, and we want to be sure that we target building where it’s needed, in cities that are and on city blocks that are struggling,” Moran said.

The bill would also triple the maximum credit available for Title V cesspool or septic system replacement, from $6,000 to $18,000, and increase the amount claimable to $4,000 per year. Lawmakers and environmental advocates say the increased credits will help homeowners replace out-of-date septic systems — which can cost tens of thousands of dollars to replace and pollute waterways when not kept up to date.

Additional changes include doubling the credit for lead paint abatement, increasing the statewide cap for the dairy tax credit from $6 million to $8 million, making public transit fares eligible for the commuter expense tax deduction, expands the occupations for which the apprenticeship tax credit is available, raises the maximum amount of alcohol for certain classes of drinks taxed at a lower rate to allow for more locally produced hard ciders and wines to qualify for the lower rate, and increases from $1,500 to $2,000 the maximum that municipalities may allow for certain seniors to reduce from their property tax by participating in the senior work-off program.

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