THE DIFFERENT tax policy packages put forward by the Massachusetts House and Senate are both called “An Act to Improve the Commonwealth’s Competitiveness, Affordability, and Equity.” Each chamber’s proposed package contains elements that would advance all three of those goals. Legislators can find common ground by rejecting the tax cut for short-term capital gains and the proposed switch to single sales factor corporate taxation because these proposals fail on all three fronts.

The Commonwealth collects short-term capital gains taxes on profits from investments that were held for less than a year. Massachusetts, like the federal government, currently levies higher tax rates on these short-term profits than on longer-term investments. The difference encourages more patient, productive capital, rather than speculative get-rich schemes with quick turnaround.

Capital gains in general are extremely concentrated among those with the highest incomes. Poor families aren’t typically collecting profits from selling investments. Their biggest asset might be a personal vehicle, which they don’t resell at a profit. The middle class also collects relatively few capital gains. When they do, it is generally from retirement savings or sale of a primary residence that gained in value – both kinds of assets tend to be held for long periods of time. Short-term capital gains meanwhile tend to be from financial deals. They are especially the province of the wealthiest.

Imagine a conversation on Zoom with 100 participants on the screen.  Suppose one person’s face occupied over three quarters of the space while the other 99 were crammed into less than a quarter of the screen. And most of those 99 have their faces blacked out because they receive zero benefit at all. You’re imagining a portrait of how the short-term capital gains cut would be distributed among Massachusetts tax filers.

Likewise, a racial equity analysis from MassBudget shows that less than 9 percent of this tax cut would go to Black or Hispanic households. Since Hispanic and Black tax filers together represent nearly 19 percent of tax filers in Massachusetts, that means it would disproportionately benefit white households. This is a tax cut that would further worsen racial inequity.

 

Single Sales Factor apportionment would mean that the profits of multi-state corporations would no longer be taxed at all based on the number of workers or investments that corporations make in Massachusetts, only on their sales here. And one reason that Single Sales Factor leads to reduced corporate taxes wherever it is introduced is because corporations can use accounting schemes to make it appear like they aren’t even making sales here — like utilizing third-party resellers so it appears like it is not a Massachusetts-based company selling to Massachusetts customers. The reasons it’s a big revenue loser aren’t good reasons.

Who benefits from tax cuts on the profits of multi-state corporations? Ownership of these corporations is extremely concentrated among the highest-income, typically whiter households. These households are the chief beneficiaries of this tax cut, while the whole Commonwealth loses out on revenues shifting from public infrastructure and services into narrow private profits. And Single Sales Factor only benefits shareholders of multi-state corporations, generally larger corporations – not local small businesses.

Proponents of these tax cuts for the wealthiest have tried to connect their cause to concerns about outmigration of Massachusetts residents. But the rate of outmigration is higher among middle- and lower-income households, not the highest-income ones. The fact that a lot of people in some professions can work remotely while living elsewhere makes it even more important for Massachusetts to make a high quality of life achievable for ordinary people. This has been a strength for Massachusetts. A New York Times analysis of Census data this month showed that in the first two years of the pandemic 8,000  more remote workers moved into the Boston metro area than moved out of it.

The reasons people choose to relocate from one state to another generally have little or nothing to do with taxes. Insofar as public policies can encourage people to remain in Massachusetts, the issues are more about access to affordable housing or childcare than high taxes on the wealthiest among us. That’s why these two tax proposals also would fail to boost competitiveness. If you’re concerned with keeping people from leaving Massachusetts, then you should be concerned about how the public is going to sufficiently invest in things like affordable housing, better access to high-quality childcare, and affordable college. These things require revenue, and cutting the public funds to advance those goals would be self-defeating.

It’s hard to imagine tax cuts that would be less productive for the economy and more skewed toward favoring the wealthiest households and largest corporations.

Phineas Baxandall is the policy director at the Massachusetts Budget and Policy Center.