Attempting to restart a debate that skidded out last summer, the Healey administration on Monday rolled out an $859 million tax relief proposal that would offer new breaks to hundreds of thousands of Bay Staters while reforming the estate tax and the levy on short-term capital gains.
Gov. Maura Healey and Lt. Gov. Kim Driscoll detailed their tax policy strategies, which will feature alongside the administration’s first annual state budget bill due on Wednesday. The plan aims to reduce the burden of the state’s suffocating cost of living and boost the state’s economic competitiveness at a time when many businesses are reconsidering their approaches now that remote work and hybrid schedules are widespread.
The largest share of the proposed relief, about $458 million, would come in the form of a new child and family tax credit, according to a a summary the administration produced.
Healey proposed creating a $600 refundable credit for each qualifying dependent, including children younger than 13 years old, adults who are disabled, and seniors. The measure combines the existing Household Dependent Tax Credit and Dependent Care Tax Credit while removing a cap on dependents and increasing the total benefit.
Altogether, the administration estimates the new child and family tax credit would apply to 700,000 taxpayers who care for more than 1 million dependents.
“Affordable child care is a key building block to an affordable Massachusetts. This credit, in taking some pressure off families’ child care budgets, will help attract working professionals and aid businesses as they recruit a skilled workforce,” the administration wrote in its budget summary, forecasting that additional early education and care initiatives will feature in the annual spending bill due Wednesday.
Healey is also reviving proposals to boost the maximum rental deduction from $3,000 to $4,000, which would affect 880,000 renters, and to double the maximum allowable credit for the senior circuit breaker credit, assisting 100,000 households. Both ideas earned approval from the Legislature last year before top Democrats retreated from the topic of tax reform after the state delivered $3 billion in unexpected tax returns.
“Massachusetts is a national leader in so many ways — in education, business, science and technology, democracy and civil rights. But we’re not leading when it comes to affordability,” Driscoll said in a statement. “If people can’t afford to live and work here, we’re not going to be able to maintain our economic edge. Our tax relief package will put more money back in the pockets of those who need it most while also making key reforms in areas where we are an outlier among other states.”
In other areas, Healey’s bill aligns with or expands upon proposals that her predecessor, Republican Gov. Charlie Baker, pursued unsuccessfully during his final year in office.
Healey calls for creating a new estate tax credit of up to $182,000, which her office said would effectively eliminate the estate tax for all estates valued up to $3 million — three times the threshold at which the tax currently kicks in.
With a few differences in details, Baker and the Legislature agreed last year on increasing the threshold from $1 million to $2 million before Democrats shelved their plans.
The Healey administration said its proposed credit would effectively eliminate the tax on any estate under $3 million in net taxable value — representing 70 percent of estates currently subject to the tax — plus offer $182,000 of relief to larger estates.
“Massachusetts is an outlier as one of only 12 states that impose an estate tax at all,” the administration wrote in its budget brief. “The state runs the risk that older residents leave the state, and professionals may not wish to move here if they see the tax climate as unfavorable for themselves and their families.”
Embracing an idea that Democrats spiked from Baker’s package last year, Healey suggested slashing the short-term capital gains tax rate from 12 percent to 5 percent, which would align it with the rate on long-term capital gains and most other forms of income.
Her administration said the existing higher rate on short-term gains from assets held for less than one year makes Massachusetts “an outlier with nearly all other states.”
“Only two other states tax short-term capital gains at a higher effective rate than long-term capital gains. By eliminating this inconsistency, we will provide relief for 150,000+ taxpayers while simplifying our tax code,” the administration wrote. “This change has no net cost to the budget, as capital gains taxes above a threshold of approximately $1.4 billion are not available to the budget under current law. Therefore, this change can bring the tax on capital gains more in line with other states, without requiring any tradeoff in terms of other potential budget uses for the funds.”
Healey’s office said the tax package would carry a total cost in fiscal year 2024 of $859 million. It said the measure has a net cost of $742 million because the $117 million in affected short-term capital gains tax revenue by law would need to be placed into reserves and could not be spent as part of the annual budget.
The plan also includes a Housing Development Incentive Program tax credit cap increase, boosted apprenticeship tax credits, an exemption for employer assistance with student loan repayment, expanded commuter transit benefits, greater lead paint abatement and septic tank repair credits, an extension of the expiring brownfields tax credit through 2028, a new live theater tax credit, a larger dairy tax credit cap, and allowing locally produced hard cider and wines to be taxed at a rate comparable to other alcoholic beverages.
The tax relief will be factored into the budget Healey will file on Wednesday. It will be up to the Democrats who control the House and Senate to decide whether to increase or decrease the scope of Healey’s proposals.
“Everywhere we go, the Lieutenant Governor and I hear from people who are struggling to get by as the cost of living continues to skyrocket past them — the family watching their grocery bill grow each week, the young mom who wants to return to her dream job but can’t afford child care, the recent college graduate who can’t afford both his rent and student loan payments, the seniors who want to keep the home where they raised their family,” Healey said in a statement. “We’re filing this tax relief package for each of them. This proposal centers affordability, competitiveness and equity each step of the way, delivering relief to those who need it most and making reforms that will attract and retain more businesses and residents to our great state.”
Legislative leaders spiked their own tax relief bill last year after it became clear in July, during the final days of formal lawmaking business for the term, that Massachusetts owed nearly $3 billion in excess tax revenues back to taxpayers under a voter-approved law known as Chapter 62F.
Since then, House and Senate Democrats have shown little appetite for pursuing tax relief once again.
The administration rolled out its tax package alongside pre-written statements of support from leaders of the Massachusetts Councils on Aging, Massachusetts Association of Dairy Farmers, Massachusetts Business Roundtable, Massachusetts Association of Early Education and Care, and Associated Industries of Massachusetts.
AIM Executive Vice President of Government Affairs Brooke Thomson, who moderated a question-and-answer session with Healey last month, said the administration’s budget “addresses threats to the Commonwealth’s competitive edge.”
“At a time when the cost of living in Massachusetts exceeds most other states, this package wisely identifies ways to help residents cut costs, reducing the financial burden on working families, while at the same time implementing tax changes that prevent Massachusetts from being an outlier,” Thomson said. “Based on this budget, it is clear that the Administration shares AIM’s concerns about the Commonwealth’s competitive future and this is a critical first step towards ensuring sustained growth and economic strength.”
The governor’s plan does not make any change to the state’s 5 percent income tax rate or its 6.25 percent sales tax rate.
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