Senate chair knocks House handling of tax break

AT A STANDSTILL over a corporate tax break, the Legislature on Thursday recessed for the remainder of the week without completing work on a bill wrapping up budgetary matters for the fiscal year that ended in June.

An arcane tax policy has become a divisive policy issue, in part because of the potential cost of the tax relief but also because debate in the House over the matter ruffled some feathers. A handful of progressive lawmakers complained that House leadership treated them shabbily as they tried to raise objections. Senate leaders are saying more debate would be worthwhile.

The Senate’s chief budget writer on Thursday underscored his concerns with the House, which are shared by a few House members who tried to keep the corporate tax break provision out of the bill disbursing the fiscal 2019 surplus.

“We feel very strongly that major tax policy should go through the Revenue Committee and have a full and open hearing,” said Senate Ways and Means Chairman Michael Rodrigues on Thursday. “The Senate feels strongly that major tax policy should be thoroughly vetted and debated.”

Rodrigues’s remarks were similar to but a little more forceful than a statement he made to the Boston Globe after the Senate stripped the tax changes from the closeout budget bill.

House Ways and Means Chairman Aaron Michlewitz on Thursday pointed out the lopsided nature of the vote to preserve the tax relief in the House, and disputed assertions that the change would cost the state tens of millions of dollars.

“While the tax pieces that both branches placed in their versions of the supplemental budget are far from the only differences being currently negotiated, the decoupling provision that the House included is a revenue neutral piece that will protect Massachusetts businesses and their employees from the harmful Trump tax law passed in 2017,” Michlewitz said in a statement. “An amendment to overturn some of these pieces was overwhelmingly defeated by Members of the House on a vote of 146-9.”

The Senate over the years has tried to glom its own policy priorities onto must-pass legislation like the closeout budget bill. In its fiscal 2020 budget bill, the Senate included proposals to add taxes onto opioids and vaping products.

In this case, the disagreement over whether to offer corporations more tax deductions has derailed attempts to reach agreement on a bill to close the books on fiscal 2019. On Thursday, with the Senate proposal pending before the House and a piece of the House proposal still kicking around the Senate, the House and Senate adjourned until Monday, which means they will blow past the deadline for the comptroller to file an annual financial report for fiscal 2019.

Rodrigues’s criticisms match up with one of the big points made by Rep. Lindsay Sabadosa, a Northampton Democrat who tried to remove the tax break from the bill on the House floor and later complained that she wasn’t afforded an opportunity to speak about it.

“This is a $37 million tax break to corporations that make over $25 million, so I think, with all due respect to the chair, this merited a much larger conversation, and it was only due to the fact that we did our homework that this issue was raised,” Sabadosa told Greater Boston.

In a statement to WGBH, House Speaker Robert DeLeo said any failure by the presiding House member to recognize others for remarks during the Oct. 16 debate must have been an “inadvertent oversight,” and the amendment that Sabadosa supported would have resulted in “financial consequences for those responsible for the debt of deceased or disabled students.”

For the most part, the state aligns its tax code with the federal system, but the House version of the closeout budget would change how the state treats corporate debt payments. The bill would “decouple” the state from a federal cap on the amount of tax deductions available for corporate interest payments.

That move was supported by the Greater Boston Chamber of Commerce in a policy brief Thursday, which said that if the cap remains in state law it “could deter investment.”

“Ensuring that businesses are not penalized for borrowing is important because borrowing is a normal part of operations, and it frequently results in additional investment or expansion,” read the business group’s policy brief.

In prepared remarks that she posted on Facebook, Sabadosa explained her opposition to decoupling the state’s corporate tax regime from the federal cap on interest payment deductions.

The federal cap, which was part of the 2017 federal corporate tax break law, should discourage businesses from taking on so much debt that they could put the whole economy at risk and encourage them to instead find equity investors, according to Sabadosa, who said that would be positive. The cap also prevents corporations from using a technique where a company borrows from a foreign subsidiary to reduce their taxable income, Sabadosa wrote.

“We have known for decades that trickle-down economics do not work; we should not be fooled into believing that corporate tax breaks are the answer and we should be especially careful of the intended consequences that this particular corporate tax break could have on our state,” Sabadosa said.

After the House included that decoupling measure in its closeout budget bill, the Senate essentially divided the bill in two, held onto the tax policy change, and sent back a closeout budget that doesn’t touch the cap on corporate interest deductions.

The closeout budget spends hundreds of millions of dollars, shoring up the state’s reserves, sending $50 million to the MBTA, and supplementing other areas of state government. The House version would send more than $400 million to state reserves, and the Senate version would send somewhat less to reserves, according to the House Committee on Ways and Means. The corporate tax provision is a major difference between the House and Senate versions of that bill.

Signing a closeout budget bill into law is also an important step for fully accounting for fiscal 2019 finances. The State House News Service reported that Comptroller Andrew Maylor expects it will take two weeks after the closeout budget becomes law before he will be able to complete the annual Statutory Basis Financial Report that was due Oct. 31. The delay also forgoes interest income the state could receive in its reserves, according to Maylor, who said that foregone interest for the reserves will amount to an estimated $30,000 per day. As it sits in the general fund, that surplus is accruing some interest, according to the comptroller’s office.

On Thursday, key senators also indicated that the different versions of the closeout budget could be reconciled by a conference committee, rather than the more informal process of amending it on the floor. That would create another series of steps in the process before the final version could reach Gov. Charlie Baker’s desk.

“I wish I could tell you that I could resolve it right away myself,” said Sen. Vinny deMacedo, the top Republican on the Senate Committee on Ways and Means. DeMacedo said there would be a conference committee, which he said could lengthen the amount of time it takes. Rodrigues said he hopes there will be a conference committee. DeLeo’s office did not comment on whether the bill would go to conference committee.

One other procedural aspect to the back-and-forth between the House and Senate is that by holding onto the tax-change proposal, the Senate may have a vehicle for passing major spending legislation later in the two-year session. Under the state constitution, changes in state tax law must originate in the House, not the Senate, but the Senate may amend tax bills sent to it by the House. Rodrigues said it could turn out useful to have that piece of legislation on hand for policy proposals down the road, but he is unsure whether it would qualify as a “money bill” that would enable the Senate to draft new tax rules.

“It’s keeping our options open. We have nothing in mind what to use it for, but traditionally we hold onto a piece,” said Rodrigues. “I have not heard it’s a money bill; I have not heard it’s not a money bill.”