Gains and credit in the state’s tax foundation
The $27.4 billion budget headed for the governor’s desk contains outside sections that would attempt to smooth out the state’s year-to-year budget gyrations and reveal whether the hundreds of millions of dollars in tax credits the state issues each year are worth their cost. Both provisions were a direct outgrowth of research done by MassINC and reporting by CommonWealth magazine.
Last year, CommonWealth ran several stories on the wide variety of tax credits popping up in Massachusetts to entice and help build industries as diverse as filmmakers and the life sciences to dairy farmers and restorers of historic buildings. The tax credits in many cases are the equivalent of state grants, but no mechanisms were in place to evaluate their effectiveness in stimulating economic and job growth.
The tax credit provision contained in the House-Senate budget would require state agencies dispensing tax credits to report on an annual basis how many are issued and how many jobs they create. The provision would also require agencies to disclose how much the jobs pay.
The House version of the tax credit disclosure, which mirrored what Gov. Deval Patrick included in his budget, would have mandated reporting the names of companies and individuals receiving tax credits while the Senate version did not. The two branches went along with the Senate approach, shielding the names of tax credit recipients from public view.
The measure also requires a report on each industry's success in meeting the goal of the tax credit, such as the number of brownfields reduced by the brownfield credit, the number of low-income units saved or created under the low-income housing credit, and the impact on dairy output from the dairy farmers' credit.
Lost in the cacophony of the budget's cuts and tax increases is a measure that will do little this year but is a giant step toward stabilizing Massachusetts's reliance on volatile capital gains tax collections. The budget calls for the Department of Revenue to set aside up to 50 percent of any new growth in capital gains tax revenue in the state's "rainy day" fund to offset those years when the collections come in below forecasts.Last year, MassINC issued a policy brief titled "Capital Gains: Avoiding Harm to the State Budget" that showed the state was among the most dependent in the country on capital gains, ranking third in its reliance. The continuing maelstrom hanging over Wall Street and other financial industries and the decrease of nearly $500 million in projected capital gains collections in Massachusetts this year shows how shaky a foundation the budget is on when counting on those revenues to fund state government.
The budget requires the administration and the Legislature to agree on the net collections from the prior year before the 50 percent can be calculated. The measure also calls for 2 percent of the set-aside to be directed to the State Retiree Benefits Trust Fund to help shore up that over-pressured system.