A difference of opinion on estate tax, capital gains
2 analysts split on whether breaks would increase state’s competitiveness
By 
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.
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.”
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.
