A difference of opinion on estate tax, capital gains

2 analysts split on whether breaks would increase state’s competitiveness

TWO OF THE state’s leading budget analysts are split on whether Gov. Maura Healey’s tax reform package will make the state more competitive in retaining and attracting wealthy residents.

On The Codcast, Doug Howgate, president of the business-backed Massachusetts Taxpayers Foundation, said passage of the millionaire tax in November has the potential to drive wealthier residents out of state, so cuts in other taxes are needed to convince them to stay put.

“The Massachusetts estate tax, income tax rates on small businesses, and capital gains rates do not make sense following the passage of the surtax. Reducing these taxes must be a core part of tax relief,” the foundation said in a recent report.

Gov. Maura Healey agrees. On Monday morning, following the Friday taping of The Codcast, Healey came out in support of a package that provides tax relief to parents, renters, and seniors and eliminates the special 12 percent rate for short-term capital gains and scales back the reach of the estate tax.

Howgate said the capital gains and estate taxes are outliers compared to the tax policies of other states and need to be eliminated or reduced to enhance the state’s competitiveness in retaining and attracting wealthy residents.

Evan Horowitz, executive director of the Center for State Policy Analysis at Tufts University, agreed the two taxes are outliers but said they have little to do with the state’s competitiveness.

“Sometimes tax cuts that benefit wealthy people also are important for competitiveness. Sometimes they’re not — they’re just tax cuts that benefit wealthy people,” he said.

Horowitz estimated the millionaire tax affects 0.6 percent of Massachusetts households, a group that tends to be younger and in their prime earning years. “We do want to keep those people. There is a competitiveness concern around those people,” he said.

But he said the people who pay the estate tax are a different group of people – they are either dead or nearing death and planning for it financially. He said that group of people tends to be beyond their prime earning years.

Horowitz said he favored tax reductions for corporations that would directly address the business climate. Howgate said those types of tax cuts are also important, but he said it’s important to send a message to individuals that Massachusetts is welcoming and not a high-tax, high-cost state to be avoided.

“Perception matters,” Howgate said. “We do need to be mindful of that.”

Horowitz said he couldn’t agree more. “I, too, am worried not just about the perception but about the reality of the state’s competitiveness in the new tax regime,” he said. “But that’s precisely why I don’t want to waste dollars on tax cuts that aren’t maximally effective in altering that perception or altering the facts on the ground.”

One other policy issue – how to treat revenues from the millionaire tax – will also start to be sorted this week. Howgate said his organization is recommending splitting the revenue from the millionaire tax into two funds, with half going toward education and half to transportation, the two areas the ballot question designated for investments. Money would be appropriated directly out of those funds, providing some transparency about how it is being spent.

Horowitz doesn’t think that approach or any other will provide true transparency. Echoing a chief concern of business groups prior to passage of the millionaire tax, Horowitz said tax dollars are fungible and it will be impossible to know for sure whether the millionaire tax money is really increasing spending on education and transportation without knowing what would have happened to the accounts in the absence of the money. 

Meet the Author

Bruce Mohl

Editor, CommonWealth

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

“It’s all funny business,” he said.