By SARAH ROBERTSON
BOSTON – Last month Governor Maura Healey signed into law some of the most dramatic changes to Massachusetts tax law seen in decades. The sweeping tax bill, she said, is intended to make living in the state more affordable, stop the outflow of workers, and incentivize high earners and businesses to stay.
Increases to the earned income and child tax credits, rental deductions, and incentives for housing developers were among the provisions aimed at reducing the cost of living. However, the tax package also gives hundreds of millions of dollars back to businesses, day traders, and the heirs of multi-million dollar estates.
The changes are expected to cost the state $561 million in foregone revenue this fiscal year, and over $1 billion annually by 2027. Critics say these cuts are contrary to the spirit of the Fair Share Amendment, a bill that expands the state’s tax base with a 4% surtax on income over $1 million. Voters passed the so-called “millionaires’ tax” last year by ballot initiative, and it is expected to generate close to $2 billion in tax revenue annually for public education and transportation.
Ian Rhodewalt, a field organizer with the Western Massachusetts Area Labor Federation, said the new tax package undermines these intended investments. “While it truly is historic that we now have an additional billion dollars in the state budget for these specific sectors,” Rhodewalt told the Reporter, “the cuts that the governor has put in place end up removing a significant amount of public investment in public goods.”
Jo Comerford was among a group of senators who argued during debate on the bill that the state can become more competitive by increasing affordability and equity, rather than by incentivizing wealthy people and businesses to stay. “Our conversation… was more focused on the folks who want to stay here, work here, and raise families here, but can’t afford it,” she told the Reporter. “That’s what ‘competitive’ looks like.”
Places to Live
At an October 4 press conference announcing the bill’s passage, Senate president Karen Spilka made it clear that its enhanced tax credits to housing developers are meant to keep working people in the state.
“This will create thousands, if not tens of thousands, of housing units across our state to help people stay here – stay in Massachusetts, live, raise a family, work, and give employees to our employers who need them so desperately,” Spilka said. “For the businesses in our state that invest in our economy and our people, this relief is going to make it easier to spur new growth, build up their workforce, and be more competitive on a national basis.”
Nearly 110,000 people left the state between 2020 and 2022, and adults between the ages of 25 and 35 are leaving faster than any other demographic.
“We’re losing these up-and-coming young people who want to stay here, but can’t afford to,” Comerford told the Reporter. “This is an expensive state.”
“I talk to too many young people who talk about postponing major life events because of cost and, due to a lack of a strong federal government, states are often pitted against each other to compete for workers,” said state representative Lindsay Sabadosa. “People right out of college, particularly those with a lot of debt, are often choosing cheaper locations.”
Low-income housing tax credits, such as those being used to renovate the former Wilson’s Department store in Greenfield and an elementary school in Athol into apartments, will be expanded by the bill. It also raises the statewide cap on the Housing Development Incentive Program from $10 million to $57 million for one year, then to $30 million annually. The program subsidizes new market-rate apartments in 26 “gateway cities.”
While renters wait for tens of thousands of rental units to be built, they might see modest savings in the meantime: the law increases the rental deduction cap from $3,000 to $4,000, saving the average renter about $50 per year according to the advocacy organization Progressive Mass.
Seniors may receive more significant savings, with the doubling of the Senior Circuit Breaker tax credit from $1,200 to $2,400. The change will cost the state about $67 million annually, and provide a refundable credit to seniors who own or rent property.
“Versions of this legislation have been around for years,” state representative Natalie Blais told the Reporter. “We were not able to get this senior circuit breaker through previously.”
The bill closed what Comerford called a “loophole” which would have allowed married couples to file taxes separately with the state, but jointly with the federal government, in order to avoid hitting the millionaires’ tax threshold.
Another change was made to a state law known as Chapter 62F, a 1986 ballot initiative that triggers tax rebates if state tax revenue exceeds a certain threshold. The rebates would now be distributed evenly among all taxpayers, regardless of how much they originally paid.
The policy change that progressive legislators and activists have fought the longest for is probably the increase to the state’s earned income tax credit. Under the new law, the state will increase its contribution to the federal program that refunds taxes to low-income households with children. The maximum refund from the state will increase by about $700 annually, when combined with federal credits, the benefit for a family with three children could be nearly $10,000.
Community Action Pioneer Valley has been part of a coalition pushing for graduated state income taxes for over 30 years, executive director Claire Higgins told the Reporter, an effort that finally broke ground with the Fair Share Amendment.
“The challenges in Massachusetts are primarily around housing affordability and childcare, so you move somewhere where it’s cheaper,” she said. “I would love to see a much more progressive tax piece here – and maybe we’ll fight for that down the road.”
Comerford said the earned income tax credit increase was a major reason she compromised on other aspects of the package. “There’s a lot of good, intuitive things in the bill,” she said. “I would also like to go further on the child and dependent tax credit.”
The child and dependent credit, described by Healey as the “most generous” in the country, was the largest single piece of the bill, representing $307 million in cuts. It is expected to provide around 565,000 families with a $440 annual tax credit per dependent, who can include children under 12 years old, seniors, and people with disabilities.
“I’m sure they can use it and welcome it, but we’re talking about a $440 tax credit like it’s somehow revolutionary for people when that’s not making a dent,” said Jonathan Cohn, policy director for Progressive Mass. “This state could be doing so much more by pooling money and investing in infrastructure to support parents rather than just giving people a check.”
The Other Half
At the press conference, Healey did not mention that the bill also made dramatic cuts to the short-term capital gains tax and the inherited estate tax. About one-third of the cuts, representing about $347 million in annual revenue according to MassBudget, will favor wealthy families and businesses.
“Massachusetts had previously been a national outlier, with only two other states taxing short-term capital gains at a higher rate than long-term capital gains,” Karissa Hand, a spokesperson for Healey’s office, told the Reporter.
Taxes on short-term gains – income from the sale of stocks, bonds, real estate, art, and other assets held for under a year – will be reduced from 12% to 8.5%, costing the state about $50 million per year according to the nonprofit MassBudget. While the Senate’s version of the bill did not include this reduction, both the Governor’s and House’s proposals did. (Blais noted that this cut will not affect the state budget immediately, because capital gains taxes go into the state’s stabilization fund.)
The bill also raised the threshold at which the estate tax kicks in from inheritances of $1 million to $2 million.
“They’re throwing money at people,” said Cohn. “Many people in this state will die in debt, and the idea of putting that much focus on cutting the taxes on multi-million dollar estates is crazy.”
Cohn said he was disappointed in the Healey administration’s “misleading” characterization of the cuts as a way to address affordability. “The cost of living is at a crisis point for so many people,” he said. “The tax bill does not meaningfully address that.”
Comerford said she agreed with the $2 million threshold as a compromise – the Healey administration had proposed $3 million.
Last month state officials held a separate press conference at the headquarters of State Street Corporation, an international financial services company, to celebrate changes to the state’s corporate tax policies. The bill changed how businesses will calculate taxes owed to the state, eliminating property and payroll taxes and counting only sales.
“We’re grateful to the Governor and Lieutenant Governor for putting forth this package, and to the Legislature for passing it,” said Economic Development Secretary Yvonne Hao. “This is a big win for our state’s competitiveness.”
Win, Lose, or Draw
“The frustration I hear from my progressive constituents is, what is the value of having a Democratic governor and an overwhelmingly Democratic legislature if we’re passing Republican policies?” state senator Jamie Eldridge of Acton told the Reporter.
Eldridge, one of only two legislators to vote against the bill, pointed out that Governor Charlie Baker had proposed cutting the capital gains tax while he was in office, but the House and Senate rejected his proposal.
After the passage of the Fair Share Amendment, he said, businesses began aggressively lobbying for changes in this direction. “A lot of large corporations, the Greater Boston Chamber of Commerce, and in my opinion the Boston Globe, are pushing hard on the idea that we passed the millionaires’ tax and now we need to provide some relief for the wealthy,” Eldridge continued. “The idea of competition is a very neoliberal frame, because what does ‘competitive’ mean? …. The idea that Massachusetts would somehow be this low-tax, low-cost state is just unrealistic.”
The legislators the Reporter spoke with who voted for the bill said that they had to make compromises with Healey’s proposals, but that the updates to the tax policy were positive overall, and that tax cuts are not the best way to make living in Massachusetts more affordable.
“It felt like the bill as a whole really supported working and low income individuals and families,” said Blais. “For me, a Yes vote for this bill felt like the right thing to do…. The things that constituents had been in contact with me about far outweighed any negatives.”
“I think there are some meaningful things here, and I think that tax policy is not the only way to address affordability,” Higgins said. “There are other levers for government to work through.”
“How are we becoming a more welcoming state, and how are we improving the quality of life for residents? I don’t see cutting taxes as the way to get there,” Eldridge argued. “When you talk to most employers they’re focused on workforce training, housing needs – it’s not the taxes that are driving people away.”
Sarah Robertson is an independent journalist living in western Mass. This article originally appeared in the November 16, 2023 edition of the Montague Reporter.
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