Senate’s $4B economic development bill provides faster tax relief
With time running short, some key differences with House
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THE MASSACHUSETTS SENATE released a $4 billion economic development bill on Monday that includes some key spending differences from a House bill in areas like education, human services, and housing. The House and Senate are largely in agreement on a $1 billion proposal to reduce a slew of taxes, but with two key differences, one related to the estate tax and another to the timing of when the tax breaks go into effect.
The Senate plans to take up the bill Thursday, leaving just 11 days for the House and Senate to reconcile their differences and get a bill to Gov. Charlie Baker before the legislative session ends.
“This package is broad-based, and we believe will make a meaningful impact to so many Massachusetts residents and working families,” said Senate President Karen Spilka in a State House briefing with reporters. “It leverages the Commonwealth’s current strong revenues and our federal relief to uplift the sectors that have helped us and continue to help us get through the crisis.”
Both the House and Senate versions of the bill would be paid for through a mix of federal American Rescue Plan Act funding, leftover money from fiscal 2022, and bonding. The Baker administration would have flexibility to determine which pot of money to use for each item, since the federal money has certain conditions attached to it.
But the Senate would introduce the tax cuts for the 2022 tax year, while the House would not implement them until 2023. “We think that’s important to provide this tax relief immediately,” said Senate Ways and Means Chair Michael Rodrigues.
Evan Horowitz, executive director of the Center for State Policy Analysis at Tufts University, said given that the state has a massive fiscal surplus now, implementing the tax relief in 2022 “is a no-brainer.”
Both plans are fairly similar to a tax relief plan that Baker proposed in January, except Baker did not include the rebates.
The other difference between the House and Senate is in the changes to the estate tax. Both bodies seek to ensure that estates worth less than $2 million do not have to pay the estate tax, which currently kicks in at $1 million. Both also seek to ensure that there is no “cliff effect,” which today requires someone to effectively pay taxes on the entire value of their estate – so an estate worth $999,999 pays nothing while an estate of $1,000,001 is taxed on the entire value.
But the mechanisms of how they do that are different and complex. The House changes the actual tax rates, while the Senate relies on a tax credit to lower taxpayers’ liability. The House plan would result in lower tax rates than the Senate’s plan for most estates over $2 million – with the exception of the largest estates, those worth over $7 million, where the House would impose even higher tax rates than exist today. The cost to the state would range from $185 million for the Senate’s plan to $231 million for a similar proposal made by Baker.
The Senate proposal includes some major expenditures that were not in the House’s plan including: $150 million to extend early education operating grants through fiscal 2023; an additional $150 million to raise rates for human service providers; an additional $225 million toward the construction of affordable and workforce housing; $100 million in new funding for electric vehicle infrastructure; and $50 million more for clean water projects.
Sen. Eric Lesser, who chairs the Committee on Economic Development and Emerging Technologies, said a committee he led that examined the future of work flagged the importance of “work adjacent issues” like housing, childcare, and transportation. This bill, he said, aims to address the housing and childcare issues in several ways, from expanding a tax incentive program that encourages market rate housing development in Gateway Cities to expanding the state’s capacity to recruit and retain early education teachers through scholarship programs.
The Senate bill does not include a House proposal to allow online Lottery ticket sales. Spilka was noncommittal on the policy saying she is “willing to hear from my colleagues on the strengths, advantages, and disadvantages” of allowing online Lottery sales.
House Ways and Means Chair Aaron Michlewitz said House and Senate lawmakers had long conversations before the bills were released about tax policy. “These were things we just had some disagreements on going into the floor debates on each side,” Michlewitz said. Michlewitz said he is “hopeful” lawmakers will resolve the disputes by July 31.