State budget watchdogs largely support Gov. Charlie Baker’s plan to give nearly $700 million in tax cuts to mostly low- and middle-income earners, but progressives warn the payback could backfire.
“The cost of just about everything is going up, and these tax breaks would help offset some of those costs for families,” the governor said last month, arguing the state is in a “very strong financial position.”
Baker is looking to raise the income threshold for when earnings become taxable, shielding the state’s lowest earners from taxation. He also wants to double tax credits for dependents and child care, double the allowable maximum for the senior property tax credit, increase the cap on deductions for rent payments from $3,000 to $5,000, cut the tax rate on short-term capital gains from 12% to 5%, and to double the threshold at which the estate tax kicks in to $2 million — and make only that excess value taxable rather than the whole amount.
But Baker will face an uphill battle with lawmakers who have historically nixed his prior attempts at tax relief. He’ll make his pitch to the Legislature at 1 pm Tuesday during a hearing before the Joint Committee on Revenue.
Watchdogs largely agree now is the right time for the type of tax relief the Republican governor is looking to provide.
Eileen McAnneny of the Massachusetts Taxpayers Foundation is backing the cuts she says “provide targeted tax relief to people who were disproportionately impacted by the pandemic — those who are on the lower end of the income spectrum.”
State tax collections have far outpaced expectations since shortly after the pandemic hit, forcing most of the Bay State economy into lockdown. But after an initial dip, monthly revenues began coming in well over benchmarks, resulting in about $5 billion more in revenues than were anticipated in the last fiscal year that ended on June 30. That trend has continued with the state currently running $794 million ahead of benchmarks.
The state’s economy was further buoyed by more than $100 billion in various federal. Lawmakers are still sitting on about $2.3 billion in mostly unrestricted federal coronavirus aid.
Greg Sullivan, a former state inspector general who now leads research at the right-leaning Pioneer Institute said the proposal “is a package that makes sense and is one that we can afford.
“The state is awash in money right now,” he said.
Paul Craney of the Massachusetts Fiscal Alliance agreed saying, “One of the best ways to help taxpayers is to give back the money they earned. Any governor or elected official would be wise to boost tax rebates, lower or eliminate taxes right now. In order for Massachusetts to remain competitive in the region and nationally, that is the only course of action.”
But Marie-Frances Rivera, president of the left-leaning Massachusetts Budget and Policy Center, said she wants to lay out a “counter-narrative around Massachusetts being flush with cash.”
“We feel that overall, the governor’s budget proposal doesn’t meet the needs that the pandemic helped to expose but that have existed here in the commonwealth for decades — around housing, education, et cetera,” Rivera said.