Gov. Baker's proposed tax reforms would overhaul estate, capital gains taxes

Photo | State House News Service Retailers Association of Massachusetts President Jon Hurst said "the taxman is winning" while taxpayers are "losing" under the state's current policies.

Write a Comment

By State House News Service

Complicated sections of tax law that make Massachusetts an "outlier" compared to other states saddle public accountants with unnecessary strain and prevent them from focusing on their clients' best interests, the head of an industry group said Tuesday.

Warning that the Bay State is "way out of the mainstream" on its approach to the estate tax in particular, Massachusetts Society of CPAs President Amy Pitter joined a cadre of business leaders calling on state lawmakers to approve Gov. Charlie Baker's proposal for $700 million in tax relief.

The package of cuts and reforms, which has not yet gained traction among Democrat legislative leaders, would bring Massachusetts more in line with peer states and offer greater "simplicity" to taxpayers and accountants, Pitter, a former state commissioner of revenue, said.

"People have asked me: isn't complex tax law good for your members because it gives them more work to do? Well, the answer is no," Pitter said at an event in Baker's State House office, flanked by the governor, his top deputies and representatives from business groups. "What it does is prevent our members from doing what they really want to do, which is advising their small business and other clients on how to be successful in Massachusetts and divert their attention to following arcane rules."

Alongside his annual budget bill, Baker in January filed legislation to create new tax breaks for renters, seniors, parents and low-income workers and to overhaul estate and capital gains taxes.

Tuesday's event -- which coincided with Tax Day -- marked the administration's latest volley aimed at swaying top Democrats, who have kept the proposal in play for the four-plus months remaining in the 2021-2022 session but have not yet lined up behind it.

Several of the think tank and business leaders who joined Baker at the State House linked the tax relief proposal to the skyrocketing pace of inflation, calling for action to relieve the financial burden many residents face as they work to recover from two harrowing years during the pandemic.

"The cost at the checkout line is getting exorbitant for our working families, and yes, their incomes are up -- in fact, the average weekly wage in Massachusetts went up 14 percent in Massachusetts last year. That probably means for the taxman some pretty good collections on the income taxes today," said Jon Hurst, president of the Retailers Association of Massachusetts. "The taxman is winning, whether it's on real estate taxes, income taxes, sales taxes, yet the consumer, the taxpayer, is losing."

Baker's bill (H 4361) would cut the tax rate on short-term capital gains from 12 percent to 5 percent, double the threshold for the estate tax to kick in from $1 million to $2 million, and only tax the value of estates above $2 million rather than their full values.

His bill would also excuse some additional low-income workers from the requirement to file taxes, double the maximum senior circuit breaker tax credit, double the dependent care tax credit, and increase the rent deduction cap from $3,000 to $5,000.

Lt. Gov. Karyn Polito said Tuesday the rental reform would "allow approximately 881,000 Massachusetts residents to keep approximately $77 million each year," $34 million of which would be concentrated in 20 "equity communities" hit hardest by the COVID-19 pandemic.

Retailers Association of Massachusetts President Jon Hurst said "the taxman is winning" while taxpayers are "losing" under the state's current policies. [Sam Doran/SHNS]
Opponents of the package contend, however, that its relief would be disproportionately provided to wealthy taxpayers and businesses rather than Bay Staters most in need.

"The Governor's proposed package of tax cuts delivers over half the total benefits to a small number of high-income households. It should be a non-starter," the Massachusetts Budget and Policy Center tweeted Tuesday afternoon, pointing to its testimony opposing the bill.

Baker's pitch has not generated excitement among legislative leaders. Although the standalone bill remains pending, House Democrats opted not to bake any of the tax breaks into their fiscal year 2023 state budget. House Speaker Ronald Mariano said he and his team "felt they weren't necessary at the time."

Instead, House leaders said they would rather inject targeted spending into areas of need, like the early education and care sector, rather than direct dollars back to taxpayers.

Baker argued Tuesday that he does not view a "trade-off" as necessary. With state tax revenues surging, another year-end surplus appearing inevitable and billions more still available in untapped one-time federal aid, Massachusetts "can afford to give money back to the taxpayers," he said.

"The commonwealth's in a very unique and unusual position where we have the ability to continue to adequately support and fund our state programs and local governments," Baker said. "Cities and towns currently have $2 billion in federal ESSER money that they haven't put to work yet. The commonwealth has billions of dollars in federal money it hasn't put to work yet. We're currently running a budget surplus that is billions of dollars above our original benchmark for the second year in a row. These are billions with a B."

"I think there's plenty of room there to figure out some way to make sure that we make the investments we all need to make on behalf of the people of Massachusetts," Baker added when asked about the House budget plan.

Lawmakers gave the Revenue Committee until May 4 to work through Baker's bill and make a recommendation on its fate, though that date could get pushed back once again.

The governor hesitated to estimate the bill's chances of receiving a favorable recommendation, saying that "predictions on how the legislative process are going to work usually end badly."

On format, though, Baker indicated he is open-minded. Although he made his tax relief bill a central piece of his state budget proposal, Baker said he would be fine with lawmakers tackling the reforms in standalone legislation or as part of a spending plan.

"Either one works," Baker said. "There's a lot that's going on and a lot that will need to go on. I think dealing with this in or out of the budget process -- it's not that hard to reconcile one way or the other, and we've done tax policy outside of the budget process several times over the course of the past 10 years or so."