House proposes $1b in short and long-term tax relief

Proposal revamps estate tax, ups breaks for child care, seniors, renters

HOUSE LEADERS rolled out a $523.5 million package of permanent tax breaks on Monday that, when combined with $510 million in one-time payments to middle-income residents proposed last week, would yield more than $1 billion in tax relief for Massachusetts residents.

House and Senate officials released a statement saying they were in agreement on the general framework of the permanent tax relief package but not necessarily on the specifics of each tax break. The permanent tax break package, which would take effect in January, echoes many of the same themes originally proposed in a $700 million tax relief package proposed by Gov. Charlie Baker in his January budget proposal, although some of the tax breaks are smaller and Baker’s call for a sharp reduction in the short-term capital gains tax rate is not included.

The House officials, led by Speaker Ron Mariano, said the smaller tax breaks were selected to keep the overall value of the proposal at roughly $1 billion. He and his colleagues also sought to portray their overall tax relief package as far superior to others put forward because of its overall size and its direct impact on residents.

Republicans on Beacon Hill, backed recently by Baker, and President Biden have proposed temporary gas tax holidays. But the House Democratic leaders said a suspension of the gas tax would primarily benefit oil companies who would not be required to lower their prices at the pump.

The House’s top budget official, Rep. Aaron Michlewitz of Boston, said the proposal would be the third largest tax rebate program in the country using federal relief funds, behind only Georgia and Colorado.

The permanent tax cuts were included in a $3.8 billion economic development bill that uses $1.25 billion in surplus tax funds, $1.5 billion in federal COVID relief money, and $1.26 billion in state bond proceeds to fund a wide assortment of initiatives across state government.

Michlewitz said $1 billion in federal COVID relief funds would remain unspent if the bill passes as is.

Baker has criticized the Legislature for doling out federal COVID relief funds at a slow pace, but Michlewitz said a recent report indicated the administration is having a hard time spending the money it has. He said only 40 percent of the already appropriated $4 billion in COVID relief funds had been spent as of the end of June.

“So rather than pour more money into programs that haven’t even gotten off the ground yet, we have tried to focus on other areas where these critical dollars can be spent in a time-efficient manner,” he said.

Large chunks of money would go to support hospitals ($350 million), nursing home facilities ($165 million), human service providers ($100 million), and hotels ($75 million).

Another $300 million would go into the state’s unemployment insurance trust fund to ease the cost burden on employers and $125 million would go to small businesses.

Michlewitz said the bill would also create a tax credit for live theater productions that is somewhat similar to the existing tax credit for film and advertising productions and increase funding for housing and housing assistance.

The Baker administration didn’t confirm Michlewitz’s report that 40 percent of the already appropriated $4 billion in American Rescue Plan Act funds have been spent, but indicated spending is moving ahead slowly because of supply chain bottlenecks and complicated federal bureaucratic compliance measures. The Baker administration said $450 million will take more than a year to deploy, particularly related to housing production.

“The administration has repeatedly stressed the importance of quick legislative action to deploy ARPA funds given two factors: (1) the impacts of supply chain delays, labor shortages, and other issues that are impacting project timelines and (2) the federal requirements and deadlines that mandate that ARPA funds be committed by 2024 and spent by 2026,” said a statement from the Baker administration.

Lawmakers late last week proposed spending $510 million to send one-time tax rebates of $250 to taxpayers filing an individual tax return and $500 to married taxpayers who file joint returns. Eligibility would be based on 2021 income, and ranges from a low of $38,000 to a maximum of $100,000 for individual tax filers and $150,000 for joint filers.

The permanent tax proposal unveiled on Monday has five components. The largest mirrors a proposal put forward by Baker that would raise the threshold level for the estate tax from $1 million to $2 million and do away with the so-called cliff effect, which required an estate’s entire value to be taxed if the value exceeds the threshold level by any amount. Under the proposal, only the amount above the threshold would be taxed, although the tax on estates valued at $4 million and above would be taxed at the rate of 16 percent. The estimated cost of the estate tax change would be $207 million a year, slightly less than the $231 million estimated by Baker, who did not include the higher tax rate on estates valued at more than $4 million.

The House proposal also raises the child care tax credit. Currently, the credit is $180 per child with a cap of $360. The House proposal would raise the credit to $310 and remove the cap, at an estimated cost of $130 million a year.

The House proposal would raise the state earned income tax credit – from 30 percent of the federal credit to 40 percent — at a cost of $91.5 million. It would also raise the tax deduction for renters from $3,000 to $4,000 (Baker had proposed $5,000). And it would increase the maximum tax break for seniors living in their own home from $750 to $1,755 (Baker had proposed $2.340).

The increases in the earned income tax credit and the tax breaks for renters and seniors would cost $91.5 million, $35 million, and $60 million, respectively.

Evan Horowitz, executive director of the Center for State Policy Analysis at Tufts University, said he was surprised the tax changes would not take effect until next year, but otherwise he applauded the package. “At roughly $500 million per year, this seems like a tax cut package that the state should be able to afford moving forward,” he said.

The House is expected to vote on the bill this week and send it along to the Senate for action.