Massachusetts competitiveness concerns not limited to taxes

STATE HOUSE, BOSTON, The Senate’s top Republican opted against seeking a vote Thursday on a roughly $750 million tax relief proposal but set off a debate that revealed some fault lines as senators prepare for action on a standalone tax bill that Democrats have promised is around the corner.

The impromptu discussion bounced from one pressure point to another, hitting on the scorching cost of housing and childcare, taxes that make Massachusetts an outlier compared to other states, and the power of local opposition to real estate development.

Each of the eight senators who spoke were responding to a growing body of analysis that Massachusetts is already on a more vulnerable economic foundation as residents decamp for lower-cost, less-taxed environs. The divergence in what they identified as the likely causes could signal that upcoming tax relief decisions will be complicated.

Senate Minority Leader Bruce Tarr brought a batch of charts to the chamber floor, contrasting the state’s recent working-age population decline and a steady increase in government spending, which relies on revenue from taxpayers.

“You can see what’s going to happen, and you can see where those lines are going to intersect. And you’re going to see that when that happens, if we don’t take effective action to avoid it, we’re going to be having conversations in this chamber about increasing the burden on the residents that remain,” Tarr said. “You might think that that’s far away, and you might think it’s a long way off, but when you look at these numbers — and I hope that you’ll digest them and think about them carefully — you will see that there is an urgency to us acting with regard to tax relief measures.”

The state’s competitiveness has emerged as a hot topic on Beacon Hill in recent years as employers struggle to find enough workers and residents across the state struggle with housing, transportation and childcare frustrations.

Gov. Maura Healey has deployed much of her political capital toward securing new tax breaks for both residents and businesses, and the House approved its own tax relief bill last month, but Senate Democrats want to wait until they wrap up work on their annual budget proposal before diving in.

Sen. Patricia Jehlen, a Somerville Democrat, followed up Tarr by arguing that lawmakers need to “get it right about what makes this state competitive and what makes it uncompetitive.”

While the state has indeed observed a decline in the size of its workforce, Jehlen said, she pointed to a recent New York Times analysis that found Boston had more net in-migration of college graduates than many other expensive metropolitan areas.

“We need to be careful. We need to understand the narrative. We need to understand the truth — who is leaving? Who do we need to stay? How do they all contribute? And how do we keep them here?” Jehlen said.

“It’s important not to think of all tax relief as good. It needs to be permanent, progressive, smart and sustainable,” she added, echoing the same words Senate President Karen Spilka has been using lately. “I hope we keep that mantra in mind, I bet we will, as we approach the next debate, which is about how to have a revenue system that supports the kind of commonwealth we want to have.”

Sutton Republican Sen. Ryan Fattman set his sights on one of the major tax areas that has featured in previous relief discussions: the estate tax.

Reform supporters say $1 million threshold at which the tax kicks in is one of the lowest in the nation, and they argue that the “cliff effect” — when an estate worth even $1,000,001 incurs tax on the full value rather than the $1 above the limit — makes Massachusetts an outlier compared to other states.

“The second-largest group leaving the Commonwealth of Massachusetts … is [people] 55 and older,” Fattman said. “Perhaps they’re looking at our state tax code and saying, ‘I’ve worked my whole life, I go 30 miles up north, and I can keep what I’ve worked for, and pass it along to my family, and try to make maybe two or three of my kids be able to afford a house in Massachusetts.'”

“People may not be able to afford to live here, but we’re creating a problem: they can’t afford to die here,” he added.

Some senators cited other factors that are driving Bay Staters away.

Needham Sen. Becca Rausch, a Democrat, recalled a Revenue Committee hearing earlier in the spring that solicited public testimony on a range of tax relief bills, including Healey’s. Four students attended, Rausch said, and told lawmakers that “not a single one of those families is going to see any relief under the proposals that were before us at that time.”

Like several other lawmakers, Rausch pointed to a much-cited Massachusetts Taxpayers Foundation report about outmigration “red flags”.

“The people who are leaving Massachusetts are doing so because they literally cannot afford to stay, because the cost of housing is too high, because our transportation system is busted, because it is not accessible, it is not affordable, because the cost of childcare is the highest in the nation, because the cost of education, particularly higher education, is too high,” she said.

Sen. Julian Cyr jumped into the mix after Rausch, saying he is one of the few lawmakers who rents rather than owns his home.

“We need to have a little humility,” the Truro Democrat said. “Yes, the tax reform package that this Senate has taken up [previously] and I think will take up helps make a difference for renters, for working families. But for young people and young families trying to make a life in Massachusetts, the absolute issue is housing affordability. That is why people are leaving. Maybe there are a few other factors on the margins.”

To afford the purchase of a median-valued home in his hometown, Cyr said, a household would need to earn $400,000 per year to cover the mortgage. He quipped that legislative pay has increased — Cyr earned about $150,000 in 2022, according to state records — “but nowhere near that extent.”

“For Cape Codders and for islanders, if you’re not lucky to have a foothold in the community, if you’re not lucky to have an astronomical amount of resources in a seasonal economy, how the hell do you make it?” Cyr said. “That is true of millennials and Generation Z who are living in Boston and in gentrifying Worcester and all other parts of the commonwealth.”

Policymakers have been unable to unjam a housing crisis that for years has generated dire warnings. Healey is betting that creating a standalone housing secretariat will help generate new production, especially paired with Gov. Charlie Baker-era reforms making it easier to secure local zoning changes and requiring more multifamily zoning near public transit.

Cyr contended that the state has “failed for decades” on housing policy and allowed excessive local control to stymie improvements, criticizing a system of “not-in-my-backyard policies that hides behind environmentalism and conservationism and historic preservation.”

One of his colleagues from Boston, Sen. Nick Collins, also voiced frustration about inaction to create new housing.

“In the city of Boston, we’ve tried to lead the way on building affordable housing when we don’t feel the same way about other communities across the commonwealth. We’ve had debates up here in the legislature about majority zoning relief, and that’s been met with significant resistance, even still with the change [in law],” Collins said. “Particularly my colleagues that are in the suburbs, I’d ask [you] to engage more aggressively with your local town municipal leaders to get on board.”

Tarr had filed an amendment to the Senate’s $55.8 billion fiscal 2024 budget that would have authorized roughly $750 million in tax relief, including increased deductions for renters, seniors and caretakers with dependents and a higher earned income tax credit.

He withdrew his amendment without pushing for a vote that would put all 40 senators on the record, referencing the still-unscheduled but planned Senate debate about tax relief that Senate Democrats have said will follow completion of the budget bill.

Senate budget chief Michael Rodrigues said Monday that he expects the forthcoming tax relief bill to be a “slam dunk.”

“We know that the House did theirs quickly before their budget. We were wise in calling a timeout. We wanted to deliberate and create a very well thought-out budget, at the same time being responsible by incorporating in that budget a $575 million hold in our balance sheet of revenues to pay for the soon-to-be-debated tax relief proposal,” Rodrigues said. “We’re going to enter this tax relief debate thoughtfully with the input and conversations and help from every single member of this body. And it will be a winning combination for the commonwealth of Massachusetts taxpayers.”