A&F Secretary Heffernan calls millionaire’s tax ‘dangerous’ 

RAISING TAXES ON income over $1 million would be a “dangerous policy,” given how well the state is doing financially under the current tax system, Secretary of Administration and Finance Michael Heffernan said Tuesday. 

“I think that if you look at the way our tax system works rights now, it’s working much to the benefit of all our residents,” Heffernan told the House and Senate Ways and Means Committees. 

Gov. Charlie Baker has long opposed the “millionaire’s tax,” a constitutional amendment headed toward the November ballot that would raise the tax rate on income over $1 million by 4 percentage points. Heffernan was asked about the proposal during the committee’s first fiscal 2023 budget hearing. His comments reflect what is becoming a primary argument by opponents of the tax increase: The state is awash in cash, so more money is unnecessary. 

Heffernan said wealthy residents already pay the biggest portion of state taxes. The state tax rate is a flat 5 percent, so residents with more money pay more in absolute dollars. Heffernan said millionaires make up half a percent of the population but pay 24 to 25 percent of state income taxes. The wealthiest 10 percent of taxpayers pay 50 percent of taxes. “We have a very progressive income tax system because of the way it’s been set up in statute,” he said. 

The hearing was held mostly virtually and gave lawmakers who write the state budget their first opportunity to publicly delve into Baker’s $48.5 billion budget proposal. The committees also heard from Secretary of State William Galvin, Treasurer Deborah Goldberg, Auditor Suzanne Bump, Inspector General Glenn Cunha, and Executive Office of Technology Services and Security Secretary Curtis Wood. Attorney General Maura Healey was unable to attend. Her office said she is working with the committee to find another date to testify. 

Here are some takeaways from the multi-hour hearing. 

Tax policy 

Lawmakers gave little indication where they stand on the governor’s proposed $700 million tax cut package. Heffernan said the package “will reduce taxes for hundreds of thousands of hardworking families and low-income residents, and it will align the Commonwealth with most other states to support our competitiveness and encourage our citizens to continue calling Massachusetts home.” 

The only question a committee member asked on the specifics of the proposal came from House Ways and Means chair Aaron Michlewitz, who asked about savings estimates from raising the threshold and changing the structure of the estate tax. Heffernan said both the estate tax and a tax on short-term capital gains, which Baker wants to lower, are catching increasing numbers of middle-income residents. Heffernan said around 9 percent of single-family homes in Massachusetts are approaching a million-dollar valuation. “Because of inflation, many more people are paying the estate tax,” Heffernan said. 

Education enrollment 

State education funding is based on enrollment numbers as of the prior October. During the first year of the pandemic, enrollment in public schools dropped by around 37,000 and many of those students did not return in 2021. But Heffernan said there has been one change in enrollment: an additional 26,000 students now qualify as low-income. 

Districts get more money for teaching poorer students because those students tend to need more services. 

MassHealth 

During the pandemic, MassHealth, the state’s Medicaid program, expanded from covering 1.75 million low-income individuals to covering more than 2.1 million people. Part of the reason was the federal government barred states from redetermining eligibility for Medicaid and kicking people off their health plan during the state of emergency. (The federal government provided higher reimbursements to pay for these individuals.) 

With the federal state of emergency set to end April 11, state health officials are planning to begin the redetermination process, so they can stop providing MassHealth insurance to people who are no longer eligible. This could be, for example, someone who lost a job, then found a new one, and can now obtain employer-based insurance.  

Heffernan said he estimates MassHealth will level out around 1.9 million people – a loss of about 200,000 individuals.  

Senate Ways and Means chair Michael Rodrigues pressed Heffernan about how MassHealth will tell people they are losing coverage. “It will be our legislative offices that will hear from constituents as they’re redetermined,” Rodrigues said. 

Heffernan said there are federal guidelines for conducting redeterminations, including a 45-day notice period, and the earliest people could start losing coverage would be June. He said there will be “plenty of notice and communication.” 

Rental assistance 

Advocates for low-income tenants have been worrying about what will happen as federal housing assistance money runs out. Already, state housing officials began cutting back some housing assistance benefits to preserve funding. Advocates had asked lawmakers to find more money to save the benefits. 

Heffernan announced Tuesday that Baker plans to file a supplemental budget in the coming weeks that will seek additional money for rental assistance as the state’s Emergency Rental Assistance Program exhausts its funding. Lawmakers would still have to act on the supplemental budget, but the idea presumably would be to fill the gap between the time the money runs out and the July start of the next fiscal year.  

Alcohol 

One change in people’s living patterns during the pandemic was in how they consume alcohol. More people are drinking at home, and fewer are drinking out. 

Testifying about the Alcoholic Beverage Control Commission’s performance last year, Treasurer Deborah Goldberg said 8 percent of state licensees (wholesalers, manufacturers, and shipping companies) did not renew their licenses, and 5 percent of retailers with municipal licensees did not renew. At the same time, there was a surge in direct-to-consumer alcohol deliveries, which were up a whopping 300 percent. 

Redistricting and re-precincting  

The decennial redrawing of district and voting precinct lines will create headaches for local and state election officials, Secretary of the Commonwealth Bill Galvin said. 

Galvin said normally, about 10 percent of precincts are divided into “sub precincts,” where voters who vote at the same polling place must receive different ballots. This year, there is a “much higher percentage” of precincts requiring multiple ballots. 

This happens because of differences in where the lines are drawn for legislative races compared to municipal races. Typically, local communities draw their boundary lines first, followed by the Legislature. This year, due to census delays, the process was reversed.  

Galvin said there will be higher costs because more ballots and personnel are needed in those precincts. Galvin also said he will need to print more ballots because the Legislature is moving toward approving early voting by mail. 

Galvin said the budget Baker proposed for the 2022 election is “dramatically underfunded” and “inadequate to conduct the election as we’re all planning and expecting it to be.” 

Cybersecurity 

Maintaining cybersecurity is becoming increasingly important as sophisticated hackers have tried to target government at all levels. Auditor Suzanne Bump said audits she has conducted related to internal controls and cybersecurity training have found imperfect compliance with agency protocols. She asked lawmakers to give her $500,000 to launch an audit initiative related to information technology. 

Executive Office of Technology Services and Security Secretary Curtis Wood also asked for a budget increase, primarily to address cybersecurity. Wood said there has been a “dramatic increase” in threats as governments transitioned to more remote work. “It is critical for the Commonwealth to remain in a state of readiness and preparedness to best position itself to mitigate potential cyber threats and maintain continuity of government services for the customers and constituents we serve,” Wood said.