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Council in the News

Crosswinds Swirling in Tax Relief Talks

Coalition Favors Spending, Businesses Cite Their Own Concerns

Chris Lisinski | 6/27/23 4:14 PM

JUNE 27, 2023…..Lawmakers eyeing prompt compromise on House and Senate tax relief bills that differ in several major ways will be buffeted by competing crosswinds that seem to disagree on what, exactly, is the best way to make Massachusetts more competitive.

One day after a House-Senate negotiating team formally kicked off its work to iron out a final package of tax cuts and reforms, a coalition of organized labor, community groups and faith leaders convened a group of workers who lamented the burdens of expensive child care, stratospheric housing prices and a transportation system notorious for delays.

Taken together, the speakers at a virtual event hosted by Raise Up Massachusetts reflected a rebuttal to the common argument that policymakers need to enact business-friendly tax code changes to make the state a more welcoming environment for employers.

“These tax breaks won’t improve our state’s competitiveness in ways that actually matter. They’ll only drain resources away from the true competitive problems facing Massachusetts: the high cost of housing, child care and higher education, and our unreliable, congested transportation system,” said Cindy Rowe, executive director of the Jewish Alliance for Law and Social Action and a member of Raise Up’s steering committee. “Instead of giving away hundreds of millions of dollars to the already wealthy, we ask that legislators balance targeted tax cuts for working families and seniors with spending on what will make our state truly affordable, equitable and competitive.”

Sarah Neville, a Chelsea resident who recently completed her PhD, told attendees at Raise Up’s virtual event that she spends about $90 per day on private day care for her 2-year-old son. The annual costs eat up more than a third of her roughly $55,000 salary, which Neville said is set by the National Institutes of Health.

“That’s why so many women choose to step out of the workforce, because it’s not even worth it for a lot of people who make even lower salaries than me. It’s not possible to work and make only a small salary compared to what you would save if you stayed home,” Neville said.

There’s relief on the horizon, Neville said, because her son secured a lottery slot in full-day pre-K in Chelsea, which will cost only $15 a day and save the family “a gazillion dollars.”

“This is what would be possible for all families in Massachusetts if we protect the funding that we voters overwhelmingly demanded through our votes for the Fair Share amendment,” Neville said.

Meanwhile, business groups continue to press lawmakers to reform sections of the tax code they argue make Massachusetts an outlier and push people to decamp for other, lower-tax states, like the 12 percent tax on short-term capital gains and one of the lowest estate tax thresholds in the country.

“If you’re a business in another state that is looking at where to expand or site a function, those are things people look at,” Greater Boston Chamber of Commerce President Jim Rooney told the News Service. “It’s both what is the effect on the business economics, in terms of what the tax rates are, and [on] personal economics: what am I going to pay and what are the people that work for me going to pay? Am I going to be able to attract and retain talent when other states are competing on these measures?”

Massachusetts High Technology Council President Christopher Anderson wrote to the conference committee last week in support of many measures that featured in the House’s bill but not the Senate’s, like cutting the tax rate on short-term capital gains from 12 percent to 5 percent and taxing multistate business based only on their sales in Massachusetts, as well as the Senate-backed proposal to expand the apprenticeship tax credit.

“The assertion by some that the Commonwealth will suffer no consequences from the departure of higher income people and job creators is deeply concerning and inaccurate,” Anderson wrote. “The High Tech Council supports efforts to make Massachusetts a more affordable place to live for all residents, but a final tax package must also urgently address the policies that make the state a national outlier on high taxes and are driving people out of the Commonwealth.”

There is still some overlap in the feedback negotiators are hearing. Rooney said the Chamber has advocated for expanding credits supporting parents and renters, and while Raise Up members said they have concerns about benefits from the estate tax reform flowing to wealthier people, they do not object to doubling the threshold.

A particular flashpoint for debate is whether — and how — lawmakers should use the tax relief bill to alter application of the voter-approved constitutional amendment imposing a 4 percent surtax on personal income above $1 million.

The Senate bill would require any taxpayers who file income tax returns jointly at the federal level to do so at the state level, a change that supporters say will close a “loophole” in a constitutional amendment that a couple could use to avoid owing money under the surtax. The text of the amendment, which voters approved in November, called for “an additional tax of 4 percent on that portion of annual taxable income in excess of $1,000,000 (one million dollars) reported on any return related to those taxes.”

The left-leaning Massachusetts Budget and Policy Center has estimated Massachusetts could forgo $200 million to $600 million in surtax revenues each year from married couples filing two single tax returns, each reporting less than $1 million in income, rather than a joint return that triggers the surtax.

“This loophole does not exist in any other state, and creates an incentive for shifting of income between members of a married couple in an attempt to game the system and reduce their state taxes,” Rowe said.

Representatives on the conference committee asked the Healey administration on Monday for more information about how the joint-filer language would impact the overall tax relief package and its bottom line. And Rep. Mark Cusack, who co-chairs the Revenue Committee, said he finds Raise Up’s tenor on the topic “frustrating.”

“After eight years working on a ballot question, they still didn’t get it right. They’re calling this a loophole. It’s the law of Massachusetts, it’s not a loophole,” Cusack said, referring to the lengthy campaign that culminated with a successful initiative petition last year. “They should have had a CPA advise them on their question. It’s done by over 90,000 filers, so it’s not a small thing. It’s a major change in the law and how people file taxes in Massachusetts.”

[Alison Kuznitz contributed reporting.]