Beacon Hill leaves seniors, families, renters waiting for tax relief
Photo | Courtesy of Commonwealth of Massachusetts
Massachusetts State House
While the bills were intertwined, a breakthrough on an overdue annual state budget on Sunday did not coincide with a pact on a tax relief bill, whose contents have now been debated across parts of three fiscal years and two governors.
The Legislature on Monday approved a $56.2 billion state budget for fiscal year 2024 after nearly eight weeks of private negotiations produced the second-latest accord in more than two decades.
And although the final plan sets aside $581 million million for the anticipated impact of tax relief in this budget cycle, lawmakers are poised to break for an unofficial August recess without any tangible progress on an issue they have been weighing for about 18 months.
Business groups that have long been pressing for changes to the state's tax code are increasingly vexed by the inaction, particularly after arguing for months that Massachusetts is losing ground to other states and needs reforms to remain a competitive hub.
"We're still hopeful that it's going to take place, but we do feel it is long overdue at this point and something we've been waiting for really since the beginning of 2022," said Christopher Carlozzi, Massachusetts director for the National Federation of Independent Business.
He added, "The fact we've gone two years with this promise of relief on the horizon and never getting it is starting to frustrate a lot of [businesses]."
For the second straight year, top Democrats are heading into August without reconciling divergent House- and Senate-approved tax relief packages, both of which are projected to have an impact of about $590 million in fiscal year 2024 and significantly more in subsequent years.
The fiscal hit the state is scheduled to absorb from tax relief is smaller than the projected $730 million that state budget officials expect will go into the state stabilization fund in fiscal 2024, raising its balance past $8 billion. And it's significantly smaller than the more than $3.5 billion spending increase that the House and Senate signed off on Monday.
Negotiators led by Rep. Aaron Michlewitz and Sen. Michael Rodrigues have refused to identify what's preventing them from agreeing to a deal.
Asked why finding consensus has been so difficult, Rodrigues replied, "I don't think it's difficult at all. I just think it's the volume of stuff that's on our plate right now."
"Democracy is painstakingly slow," Rodrigues said. "The deliberative process can be very slow at times, and I always quote Winston Churchill, who said, 'Democracy is the worst form of government, except for all the others.' "
Lawmakers are off to a slow start this session. The House and Senate have met infrequently and have not approved any significant legislation beyond the annual budget, an annual road and bridge maintenance funding package, and some other spending measures.
The Legislature in non-election years rarely takes up significant business in August and usually picks up seriously legislating sometime in September.
"Tax relief as soon as possible. We are in regular communications," Rodrigues told reporters Monday, referring to talks with House Democrats.
The South Coast Democrat said tax relief is reflected in a "hole on the balance sheet" and called the lack of a tax relief accord "disappointing news."
Before voting for the budget deal Monday, Senate Minority Leader Bruce Tarr joked that he could not find tax relief in the package even using a "magnifying glass." Tarr said while he's disappointed overall, he's "encouraged" the budget accounts for more than half a billion dollars in eventual relief.
Both the budget conference committee and the tax relief conference committee are led by Michlewitz and Rodrigues.
Carlozzi said he felt the tax reform package should have advanced alongside the budget given their overlapping focus.
"Our members have been waiting and waiting patiently," he said. "The sooner it gets done, the better, but once again, it feels like they are being pushed to the backburner."
Among the measures stuck in limbo are several proposals that have now been approved in two straight sessions by both branches, such as doubling the senior circuit breaker tax credit, delivering relief to those paying rent, and expanding the Earned Income Tax Credit that supports lower-income families.
Other ideas did not secure support across both chambers. The House reduces the short-term capital gains tax rate from 12 percent to 5 percent, something Gov. Maura Healey has embraced, and changes how taxes are calculated for multistate businesses.
"The failure to produce a compromise tax bill in conjunction with the FY 2024 budget increases uncertainty regarding the future of necessary relief; however, the setting aside of revenues to cover the costs of future legislation signals the continued commitment of legislative leaders to finalize a tax relief package after nearly nineteen months of negotiation," the business-backed Massachusetts Taxpayers Foundation wrote in a report about the budget deal Monday.
Top Democrats were initially mum when former Gov. Charlie Baker used his January 2022 State of the Commonwealth to call for returning money directly to taxpayers, but by that summer, they rolled out their own plans and pitched them as a way to help households withstand the pressure of inflation.
In July 2022, Revenue Committee Co-chair Rep. Mark Cusack said the idea under consideration at the time provided "over a billion dollars in direct relief."
"And I urge my colleagues to be proud of that, to go out there and sell it, and let people know that they are getting their money back from us -- over a billion dollars," he said at the time.
Lawmakers eventually retreated from tax relief during the 2021-2022 session after learning that state government owed nearly $3 billion in rebates to taxpayers because it collected far more revenue from taxpayers than is allowed under a voter-approved tax cap law known as Chapter 62F.
While House-Senate negotiators still have not found consensus on permanent tax relief, they did agree on one tax reform that could make automatic relief like the kind Bay Staters saw last year less likely.
The final conference committee budget exempts new income surtax revenues from counting toward the limit on allowable tax collections imposed Chapter 62F. Taxes collected above that limit must be returned to taxpayers.
Democrats in both branches muscled through the exemption for the tax increase they sponsored, despite Republican opposition.
The right-leaning Massachusetts Fiscal Alliance criticized legislative leaders for being "not open to transparency or tax relief," noting that the $56.2 billion budget accord was filed shortly after 8 p.m. Sunday and approved in both branches about 20 hours later.
"They go through great lengths to hide a secret we already know, the Massachusetts legislature failed to provide any tax tangible relief in their budget," said MassFiscal spokesperson Paul Craney. "Despite an obvious need for the state to become more economically competitive after the narrow passage of the income surtax which is driving taxpayers to New Hampshire and Florida, Speaker [Ron] Mariano and Senate President [Karen] Spilka failed to respond."
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