What’s a money bill?

THE LEGAL BATTLE between the Massachusetts House and Senate over the constitutional authority to raise taxes in this year’s budget hinges on interpretations of a 137-year-old Supreme Judicial Court advisory opinion.

In briefs filed with the current members of the SJC, the House and Senate agree on the basic facts of their dispute but differ on how to interpret those facts and on the legal precedents that apply. At stake is the legality of Senate budget amendments freezing the state’s income tax at 5.15 percent, increasing personal tax exemptions, expanding the earned income tax credit, and taxing flavored cigars and chewing tobacco. The Senate says its initiatives, which together redistribute hundreds of millions of dollars in taxes, are an attempt to address income inequality.

The dispute between the House and Senate centers on constitutional prerogatives that trace back to the Massachusetts Constitution and before that to English parliamentary rules. The Massachusetts Constitution says “all money bills shall originate in the House of Representatives; but the Senate may propose or concur with amendments, as on other bills.”

The framers of the Massachusetts Constitution gave the House authority to initiate money bills, or taxes, because that was the procedure followed in England, where the House of Commons was given initial taxing authority because it was considered more representative of the general population than the House of Lords.

House Speaker Robert DeLeo says the budget his chamber approved for fiscal 2016 doesn’t contain any tax measures, so the Senate cannot include taxes in its proposal. But the Senate says it could include its tax measures because the House budget contains two tax initiatives, one that delays the effective date of a corporate tax deduction and another that expands a tax credit given to people who donate land to the state.

The question before the SJC is: What constitutes a tax?

The SJC addressed the question indirectly in 1878 when it was asked by the Legislature whether a budget appropriation bill was a money bill under the Constitution. The court determined that legislation appropriating state funds for various purposes would not constitute a money bill, so either branch could initiate that type of legislation. But in making its ruling, the court spelled out what a money bill is.

“We are of opinion that the exclusive constitutional privilege of the House of Representatives to originate money bills is limited to bills that transfer money or property from the people to the state, and does not include bills that appropriate money from the Treasury of the Commonwealth to particular uses of the government, or bestow it upon individuals or corporations,” the court wrote in its opinion.

The opinion cited an earlier 1781 opinion of the SJC in which the chief justice at the time defined a money bill as “a bill imposing a direct tax on the people.” That definition was given deference by the 1878 court because all of the judges on the 1781 court had been members of the convention that wrote the Massachusetts Constitution in 1780.

The House, in the legal brief it filed with the current SJC, said the 1878 SJC opinion is clear that money bills are bills that raise revenue. Bills affecting, directly or indirectly, state expenditures or that create or amend existing tax measures would not qualify, the House brief said. The brief noted that deferral of a corporate tax deduction does not raise money and the expansion of a tax credit would actually result in the state receiving less tax money.

The Senate in its brief said the House’s interpretation of the 1878 opinion is too literal, “limiting money bills to legislation with the actual effect of increasing taxes. But there is no reason to read the justices’ advice in that crabbed fashion, especially when it could lead to further disputes.”

The Senate brief notes the Legislative Drafting Manual, agreed to by both branches as recently as 2010, states that a money bill may either “reduce general state tax revenue or increase state tax revenue.” The deferral of the corporate tax deduction contained in the House budget effectively prevents the loss of nearly $46 million in state revenue and the expansion of the tax credit for donating land to the state has the potential to reduce state revenue by up to $3 million.

The Senate brief noted the definition of a money bill contained in the Legislative Drafting Manual is supported by federal appeals court decisions from 1985 dealing with the US Constitution, which has a similar clause giving the House authority to initiate money bills. The federal decisions point out, perhaps with a nod to supply-side economics, that it is not always clear whether a tax measure will result in increased revenues.

“The simplest solution to this potential morass is the same one the federal courts have adopted: interpret the money bill clause to include all legislation intended to affect state revenue,” the Senate brief concludes.

But the House, in its brief, said the federal appeals court decisions should be ignored because they conflict with the previous opinions of the SJC and holdings of the US Supreme Court and the First Circuit Court of Appeals.

The SJC justices, in making their ruling, will have to decide whether their predecessors from a different era or more modern-day federal justices should be given deference.