House leaders opt for rainy day fund over tax cut

Michlewitz says makes more sense to bolster state savings account

STATE HOUSE NEWS SERVICE

GOV. CHARLIE BAKER’S proposal to double the tax exemption for dependent children was left out of a $714 million spending bill being debated Wednesday because leadership prioritized building up the state’s savings, a top House Democrat said.

House Ways and Means Committee Chairman Rep. Aaron Michlewitz said that instead of setting aside $175 million to pay for two years of the expanded tax break, he was proposing to increase the state’s latest deposit to the state’s “rainy day” account to $428 million, up from the $168 million recommended by Baker.

“It was a cost issue,” Michlewitz told reporters after a closed door caucus where he walked House Democrats through the surplus spending bill that will close the books on fiscal 2019.

He added, “We wanted to take some of the additional money and add more into the stabilization fund.”

The deposit into reserves would bring the balance of the state’s savings account to about $3.3 billion, according to the Massachusetts Taxpayers Foundation. The focus on bolstering the state’s financial safety net comes as the state’s economy growing more slowly, despite low unemployment.

Baker had proposed to create a special fund that would include enough money to cover two years worth of the $87 million annual cost of doubling the exemption affecting people with children or who care for dependent relatives who are elderly or have a disability. The doubling of the tax exemption from $1,000 to $2,000 would have helped about 1 million families by reducing income taxes by an additional $50 per dependent in the typical case, according to Baker, who called his proposal a “working families” tax cut.

“We took all the different proposals that the governor put in that supplemental budget seriously and we analyzed all of them and I think at this point in time we felt that it was not the right time to be having that discussion,” Michlewitz said.

The governor also recommended decoupling Massachusetts from the federal tax code in order for businesses to continue deducting interest, as they had before federal tax reform. That tax break, worth about $37 million a year, was framed by the business community as likely to lead to investments in equipment and expansion. It was included in the House version of the bill that is expected to be shipped to the Senate later Wednesday.

Michlewitz defended choosing one tax break for businesses over another for families by asserting that the interest deduction is not something the state will have to pay for once the surplus is gone.

“The business decoupling piece we believe to be revenue neutral because it’s revenue we’ve never seen, it’s not been something that’s been allocated in the past so it’s not something we see as a potential cost driver,” he said.

Asked whether Democratic leaders were holding on to the idea of a family tax break for the revenue debate expected this fall in the House, Michlewitz said, “I think it’s too early to tell at this point in time.”

House Speaker Robert DeLeo has promised a debate this fall on ideas to generate new revenue for transportation and infrastructure needs. Though only a month remains before lawmakers will recess for the year in November, DeLeo did not back off his intentions, but also did not offer a concrete timetable.

“That’s one of the issues that I’m going to be discussing with the chair today,” DeLeo said. “It’s still on the agenda.”

The closeout spending bill did include $50 million requested by Baker in one-time funding for the MBTA to allow it speed up repair and infrastructure improvement work to improve the rider experience on the T.

The funding was part of plan put together by the administration in June to improve inspections and accelerate repairs and track work across the MBTA in the wake of derailment of a Red Line car caused by a deteriorated axle.

Michlewitz had previously expressed some concern about the one-time nature of the MBTA expense, but said he reached a “level of comfort” with the request to include it in the spending bill.

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Matt Murphy

State House News Service
“It’s necessary,” Michlewitz said. “The MBTA did request it. I think it shows that there’s a continued need for this type of revenue for the MBTA in particular. Transportation as a whole, but the MBTA in particular. That’s why we’re supporting it going forward.”

“Hopefully we can have a bigger, broader discussion down the road,” he said.