The state’s fiscal watch dogs mostly responded to proposals from the House and governor to lower taxes with cautious optimism, setting them at odds with the chagrin displayed by progressive members of state leadership’s own party.
“Lawmakers should support Gov. Healey’s proposals to reduce the short-term capital gains tax rate and raise the level at which the estate tax kicks in,” Eileen McAnneny, a senior fellow in economic opportunity at Pioneer Institute in Boston wrote in a Monday op-ed published in the Boston Business journal.
Gov. Maura Healey, at the end of February, offered a plan to cut about $750 million in revenue from the state’s coffers in 2024 and nearly $1 billion after that by giving renters, seniors, and parents significant tax breaks. She also proposed a cut to the short term capital gains tax and the estate tax, both of which were also offered by her predecessor last year.
Lawmakers in the House and Senate were not inclined to include former Gov. Charlie Baker’s capital gains and estate tax changes in last year’s tax cut plan, which passed both chambers but died in conference committee after it was revealed a rarely invoked state law had been triggered and $3 billion was due back to taxpayers.
This year’s tax cut proposal, passed by the House and sent to the Senate last week, actually came in higher than Healey’s in the long run, with almost identical reforms included but adding a staggered implementation of an about $600 dependent tax credit.
It also included both the previously ignored proposals from the executive branch to up the death tax threshold and slash the short term capital gains from 12% to 7%.
Lower chamber lawmakers who spoke in favor of the plan, according to McAnneny, had their hearts in the right place, if not their heads.
“When legislators asked supporters why the administration’s proposed cut to the commonwealth’s highest-in-the-nation short term capital gains tax rate and raising the threshold at which the estate tax kicks in are important, many responded that they were needed to improve Massachusetts’ competitive position,” she wrote Monday.
“That’s true, but there is an even more compelling reason to adopt these changes. We need to entice taxpayers subject to those taxes — as well as the new surtax on all annual income over $1 million — to stay in Massachusetts, because we disproportionately rely on them to fund state government,” she continued.
The Massachusetts Taxpayers Foundation, which McAnneny led before moving onto Pioneer, analyzed both plans and came to the conclusion either would help the state stand out when held against other states by prospective residents.
“House Ways and Means, like Governor Healey, has put forward a significant tax proposal that
includes major provisions to assist with affordability and begin to address elements of the tax code that incentivize relocation,” they wrote in their analysis.
That reaction by fiscal groups is at odds with the response of some members of House leadership’s party.
State Rep. Mike Connolly, one of three progressive lawmakers who voted against the bill, said “there are real concerns about the parts of this bill that overwhelmingly benefit big corporations and the very wealthy.”
Andrew Farnitano, speaking for the group behind the state’s Millionaire’s Tax, said the tax cut plan “would give away hundreds of millions of dollars each year to the ultra-wealthy and large corporations, defying the clearly-expressed will of the voters.”
At least one fiscal group, the conservative Massachusetts Fiscal Alliance, expressed concern the cuts were not enough.
“Our economic competitiveness rankings are in free fall. If our state government is to address this issue and head it off before it becomes catastrophic, they need to take bold action. The changes to the estate and capital gains taxes put forth by the House won’t cut it,” he said.
