A step toward tax relief, but affordability and competitiveness challenges remain
The recent advancement of tax bill H. 4104, which is expected to be enacted by the Legislature this week after languishing for more than 20 months, puts Massachusetts taxpayers one step closer to realizing some tax relief. However, it may be too little to tackle the Commonwealth’s affordability and competitiveness challenges.
The package is worth $561 million in FY2024 and would exceed $1 billion annually when fully phased in in FY2027. In contrast to Governor Maura Healey’s more targeted approach, the final bill contains more modest changes to a wider array of tax provisions that will impact more taxpayers.
Pioneer Institute applauds the Legislature’s recognition of the state’s growing affordability problem and the several steps they take to provide relief to certain taxpayers. An increased earned income tax credit, a more generous renter’s deduction, a senior property tax credit, and a dependent care deduction will provide much needed relief to discrete populations that are struggling to make ends meet.
Pioneer also supports long-overdue changes to the state’s tax apportionment formula. For tax years beginning on or after January 1, 2025, the portion of a multistate company’s total revenues subject to the Massachusetts corporate excise tax will be determined by using the percentage of their total sales that occur in Massachusetts.
“In an era when companies have more choices about where to locate people and offices, disregarding the payroll and property factors in determining a company’s tax base is an important change to the way tax liability is calculated that will help the commonwealth retain employers,” said Pioneer Institute Senior Fellow Eileen McAnneny.
Pioneer Institute is less bullish on the more modest changes to the estate tax and the tax rate on short-term capital gains.
“Many of these changes are a step in the right direction, but let’s be clear: They fall far short of what’s needed to materially change Massachusetts’ competitiveness relative to other states,” said Pioneer Executive Director Jim Stergios. “When this is signed, Massachusetts will still remain an outlier. In just the last few years, two dozen states have lowered their income and other taxes; meanwhile we are fiddling around with minor details on the short-term capital gains and estate taxes.”
The Legislature took two steps related to the income surtax that was approved by voters last year. The first requires the Healey administration to explore the feasibility of providing a 4% voluntary entity level tax for pass-through entities to mitigate the effects of the income surtax on businesses. This is a great idea that should be explored.
The other proposal requires taxpayers filing jointly at the federal level to also file jointly at the state level. Proponents of this provision claim that it is necessary to close a loophole that will enable married couples with combined income of over $1 million to avoid paying the surtax by filing separately. In fact, it is a material change to the language of the ballot initiative and is likely to be challenged as unconstitutional by affected taxpayers.
You can see a section-by-section summary of the tax package by clicking on the button at the top of this post. For a copy of the complete legislation, click here.