A difference of opinion on estate tax, capital gains

By CommonWealth Staff 0 Comments Feb 27, 2023

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.

CommonWealth Magazine · How far will Healey go on tax competitiveness?

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.

“It’s all funny business,” he said.

BRUCE MOHL

FROM COMMONWEALTH

Grappling with death: With a Supreme Judicial Court decision from last year putting the onus on the Legislature to address the question of medical aid in dying, some lawmakers begin a push to take up the emotionally charged issue. Pending legislation would establish a 10-step vetting process for adult patients with a terminal diagnosis of six months or less to live to be given life-ending medication to take if they choose it. Read more.

Healey tax package: Gov. Maura Healey unveils a tax reform package that, as expected, includes relief for parents, renters, and seniors but also addresses two “outlier taxes” that business groups say hurt the state’s competitiveness in retaining and attracting wealthy residents. The outlier taxes are the state’s estate tax and the 12 percent tax on short-term capital gains. Healey’s proposal would significantly soften the impact of the estate tax and tax all capital gains at 5 percent.

– Healey is following the playbook of her predecessor, Charlie Baker, who tried to get a similar package of permanent tax cuts through the Legislature last year. The measure stalled when a tax cap giveback required the state to return $3 billion to taxpayers on a one-time basis. Lawmakers were generally receptive to Baker’s package, but they balked at including the elimination of the tax on short-term capital gains.

– Healey’s proposal would also introduce or expand a number of tax credits. One, the Housing Development Incentive Program, is important to housing production in Gateway Cities. It would up the annual cap from $10 million to $50 million in the coming fiscal year to address a backlog of projects before lowering it in subsequent years to $30 million.

– The budgetary impact of the tax package in the upcoming fiscal year will be an estimated $742 million, but the annualized cost will run closer to $1 billion. Read more.

Transparency at the T: The MBTA is continuing its transparency efforts under interim General Manager Jeff Gonneville, who promptly disclosed a repair vehicle derailment, unveiled website dashboards shedding light on slow zones and progress on safety efforts, and explained why subway service levels aren’t increasing even as staffing in the subway system’s operations control center is rising. Read more.

Alewife cleanup: MBTA is expecting the mezzanine at the Red Line’s Alewife Station to reopen toward the end of March after repairs are completed to the glass roof which was damaged in a suicide attempt. The T is also considering trying to recover some of the cost of the cleanup and repairs. Read more.

OPINION

Free speech advocate: Rachel Silber Devlin, the author of a new book about her late father, former Boston University president John Silber, says he never caved in to threats challenging the free speech of those on the left or the right. Read more.

Waterfront resilience: Vikki Spruill, the president and CEO of the New England Aquarium, says waterfront resilience is ground zero in the fight against climate change. Read more.

Decarbonization holes: Arnold Wallenstein, an attorney who represents power producers in New England, said the Massachusetts decarbonization road map has some gaping holes in it. Read more.

FROM AROUND THE WEB

BEACON HILL

Several thorny cases of possible political corruption were left on new Attorney General Andrea Campbell’s plate to deal with – an issue that has confounded many AGs before her. (Boston Globe)

MUNICIPAL MATTERS

Boston City Council President Ed Flynn voiced support for Mayor Michelle Wu’s rent control plan. (Boston Herald) In dueling op-eds, Greater Boston Real Estate Board CEO Greg Vasil says Wu’s plan will stifle housing production, while Peter Dreier and Don Gillis defend the plan and say it’s actually “pro-business.” (Boston Globe)

The final days of a special election campaign for a vacant New Bedford city council seat are being roiled by charges that one of the candidates, Shawn Oliver, made social media posts between 2019 and 2022 that mocked transgender people. (New Bedford Light)

WASHINGTON/NATIONAL/INTERNATIONAL

Former senator and secretary of state John Kerry said he plans to remain in his role as special international climate envoy for the Biden administration at least through this year’s United Nations climate summit in November. (Boston Globe)

BUSINESS/ECONOMY

Western Massachusetts realtors take stock of regional housing pressures, as condo sales boom and they anticipate a more balanced market in 2023. (MassLive)

Independent bookstores are booming. (Boston Globe)

TRANSPORTATION

Four years after a train killed Emerson College professor Moses Shumow at Beverly Depot, the station still features no pedestrian gate, no signal, and no horn. (MassLive)

US Rep. Bill Keating says the state will win federal help to rebuild the two bridges to Cape Cod, despite the setbacks in earlier funding rounds. (Boston Herald)

CRIMINAL JUSTICE/COURTS

Professional Firefighters of Massachusetts, the state’s largest firefighter organization, is balking at court-ordered revisions to the promotional exam aimed at addressing adverse impacts on minority candidates. (Worcester Telegram)

A new prison moratorium bill raises concerns in Taunton, already feeling the strain on its psychiatric hospital due to a lack of action in replacing a decade-gone Department of Youth Services facility. (The Enterprise)

The Essex County sheriff’s office is lowering the hiring age from 21 to 19 for correction officers in a bid to address a critical shortage of employees. (Eagle-Tribune)

The Fall River Police Department is having trouble with recruiting because lots of would-be officers can’t do a required 1.5-mile run in fast enough time. (Herald News)

MEDIA

Many newspapers, including the Boston Globe and New York Times, are dropping the Dilbert comic after the author went on a rant about how Black people are a “hate group.” (New York Times)

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