Gov. Charlie Baker's $693 million plan to give Massachusetts residents some measure of tax relief amid increased inflation and crushing housing costs would benefit as many as two million taxpayers if it becomes law.
The tax proposal is at the heart of Baker's new $48.5 billion budget proposal for the fiscal year starting in July. If approved by the Legislature, it would mark a 1.3% increase in overall spending over the current year, less than the annual increases seen in recent years.
"We generate about $36 billion in tax revenue, plus or minus. $700 million is 2%. That's certainly within the bounds of doable with what I would call a fully funded budget," Baker said at a State House press conference introducing his plan Wednesday.
The tax cuts would be paid for with higher-than-expected tax revenue over the course of the pandemic paired with the atypically low increases in state spending. The bulk of the tax break would come from doubling the threshold for the estate tax from $1 million to $2 million as well as changing how estates are taxed — just on the value above the threshold, instead of the total amount, to eliminate the "cliff effect." The Baker administration estimates the estate tax break could save wealthier estates $231 million this year and would affect only about 2,500 taxpayers.
Baker described the estate tax change as a way to improve the state's competitiveness as aging families seek warmer climes and lower taxes in southern states. Administration and Finance Secretary Michael Heffernan said Massachusetts is one of only 17 states and Washington D.C. with an estate tax.
"At the current one million threshold, the Commonwealth is tied with the state of Oregon for the least competitive and lowest dollar exemption threshold in the country," Heffernan said.
On the other end of the spectrum, Baker expects to save $41 million for around 234,000 of the state's poorest families by adjusting state taxes to align with federal law and essentially ceasing to collect income tax from the lowest earners.
Three more tax breaks are meant to relieve residents from Massachusetts’ housing costs. Baker would double the tax credit from $1,170 to $2,340 on around 100,000 senior homeowners. Around 881,000 renters in the commonwealth would be able to deduct $5,000 for rent payments under the proposal, up from the current $3,000. Credits for dependents and childcare would also rise for some 700,000 families. All in all, Baker's housing tax breaks would amount to around $304 million.
"The tax proposal we're filing today reduces the burden on low-income residents and lets families keep more money in their pocket to pay for things like housing and child care," Baker said.
Along with the tax breaks, Baker would invest another $700 million into the state's emergency stabilization fund (popularly known as the "rainy day fund"), bringing it to a record $6.6 billion total.
Liberals who'd rather see Massachusetts invest in state services as it exits the pandemic weren't thrilled with Baker's tax breaks. MassBudget President Marie-Frances Rivera welcomed the tax breaks for seniors, renters and families, but wrote in a statement that Baker's tax cuts for richer residents should not be a priority.
"The wealthiest individuals in our state shouldn’t be able to enjoy huge windfalls during the pandemic while students, teachers, small business owners, renters, and small landlords wait for relief from this crisis," Rivera wrote.
