Does budget run afoul of Baker push for no new taxes?
Legislature's plan would repeal a corporate tax deduction
GOV. CHARLIE BAKER on Wednesday hailed the Legislature’s plan to boost the state’s Earned Income Tax Credit and pay for the tax giveback for low-income working families by permanently doing away with a fairly obscure corporate tax deduction, saying “that’s a good thing and I don’t believe it’s a tax increase.”
Baker, who has made a budget that doesn’t raise taxes or impose new fees a high priority, declared victory after reviewing the Legislature’s budget proposal. But he’s getting pushback from the state’s business community and the Supreme Judicial Court.
The SJC, in an advisory opinion issued last month, said a one-year suspension of the corporate tax deduction called FAS-109 would qualify as a tax because it takes money away from corporations and gives it to the government. A permanent repeal of the deduction would be no different.
Christopher Geehern, executive vice president of Associated Industries of Massachusetts, said his organization was deeply disappointed with the Legislature’s decision to repeal the corporate tax deduction. He said AIM, the Massachusetts Taxpayers Foundation, the Massachusetts Business Roundtable, and the Greater Boston Chamber of Commerce plan to write a letter to the governor urging him to veto the provision.
“It really is a significant tax increase,” said Geehern, whose organization helped negotiate the tax deduction in 2008. He said the deduction was designed to return to companies over a seven-year period the money they spent coming into compliance with new corporate tax reporting measures covering firms with operations in other states and countries. He said the business community was willing to look the other way when the tax deduction was suspended each year to help the state weather a recession, but the permanent repeal proposed in the Legislature’s budget plan is going too far.
“It really creates a significant credibility problem for the state,” he said, noting that the deduction was negotiated in good faith.
Legislative leaders, all Democrats, acknowledge that repeal of the corporate tax deduction is a tax increase in a technical sense, but they say all of the money from the repeal will be used to boost the Earned Income Tax Credit, which puts money in the pockets of some 400,000 low-income families.
By contrast, the leaders say the bulk of the tax deduction benefits would go to very large companies such as Verizon Corp. and General Electric. Geehern said a 2010 report from the Department of Revenue estimated 128 companies would qualify for the deduction.For now, Baker is choosing to view the repeal of the corporate tax deduction as something other than a tax hike. “FAS-109 has never been implemented here in Massachusetts, so, therefore, basically taking what has been standard practice and using that as a mechanism to fund the Earned Income Tax Credit, I think that’s a good thing and I don’t believe it’s a tax increase,” he said. A one-year suspension of FAS-109 was included in his budget proposal.
Tim Buckley, the governor’s spokesman, said Baker never signed an anti-tax pledge when he was running for office because it would have prevented him from cleaning up things in the tax code such as FAS-109.