Patrick plan has tax break for homes

SOMERVILLE -- As many as 100,000 Massachusetts homeowners would receive up to $870 a year in tax relief under a plan unveiled by Governor Deval Patrick yesterday that relies on the state's corporate community to foot the bill.

The new governor, who made property tax relief one of his signature campaign themes, proposed paying for the $75 million initiative by eliminating what he said were outmoded tax exemptions businesses have been exploiting. If the Legislature agrees to all the tax changes, they would eventually produce about $500 million a year.

"They're gaps; they're cracks in our existing tax structure that clever accountants and lawyers -- and I used to employ them when I was in business -- use to aggressively avoid paying their fair share," he said, addressing a group of business owners, local leaders, and homeowners over lunch at Amelia's Kitchen. "We want to take the squeeze off of municipalities and you."

Reaction was mixed in the Legislature, where many lawmakers share Patrick's desire to ease the burden on property owners but are loath to do anything that could be construed as imposing new taxes on businesses.

Representative Daniel E. Bosley, a Democrat from North Adams and cochairman of the Joint Committee on Economic Development and Emerging Technologies, said Patrick was "on the right path," but that he would prefer to see an expansion of the state's earned-income tax credit, which would benefit the neediest residents regardless of whether they own homes. He added that he was concerned about the economic impact of eliminating the so-called loopholes.

"I applaud the fact that he wants to standardize our corporate tax policy and have everyone pay their fair share, but you can't entice businesses here if they don't know what our tax policy is going to be next year," Bosley said. "Every year we're closing loopholes, and good, bad, or indifferent, those loopholes are part of the business balance sheet."

Outside the State House, advocates and budget analysts had sharply opposing views of the plan.

Geoffrey Beckwith, executive director of the Massachusetts Municipal Association, said the property-tax measure would complement the municipal relief package Patrick introduced last week, which would allow communities to raise small local levies on meals and hotel rooms as part of a plan to reduce cities' and towns' reliance on the property tax and help subsidize property tax relief for low-income seniors.

"The property tax is a major drag on our state's economic future, and we have to diversify municipal revenues and provide creative ways to lessen the burden on homeowners and residents, so that we can create a much more economically robust platform to build on," he said.

Michael Widmer, president of the business-backed Massachusetts Taxpayers Foundation, was scathingly critical of Patrick's plan.

"The proposal provides limited property tax relief at a high cost to the Massachusetts economy," said Widmer, adding that it would be economically destructive to ask corporations to take another $500 million hit on top of the $400 million they had to pay after the Romney administration closed other so-called loopholes and a $600 million increase in unemployment insurance taxes in 2004.

"Cumulatively, you're talking about $1.5 billion annually in additional taxes at a time when our economy is weak, 150,000 jobs below where we were in 2001," said Widmer, whom the Legislature often turns to for budget analysis. "This adds significantly to the competitiveness disadvantage facing Massachusetts businesses."

Patrick, who returned to policy after a week spent mired in controversy about his spending, said property tax relief is critical to retaining workers and revitalizing the state's economy.

His plan would create a "homeowner circuit breaker" that would offer individuals who meet income guidelines a credit on their income taxes for the amount by which their property tax, sewer and water bills exceed 10 percent of their income, up to $870 a year. A similar benefit is already available for taxpayers 65 and older.

The income limits to qualify for the program would be $46,000 for individuals who have no dependents, $58,000 for heads of household (individuals with dependents), and $70,000 for married couples who file jointly.

The property in question must be worth no more than $684,000.

At $870, the credit would represent a nearly 25 percent break in the average statewide property tax bill of $3,800, the governor's office estimated.

The circuit breaker would take effect Jan. 1, 2008, but would cost little until the spring of 2009, Patrick aides said, when most taxpayers would file their 2008 income tax returns.

Aides to Patrick said the governor would pay for the plan by closing seven corporate tax loopholes worth $295 million in fiscal 2008 -- they would take effect halfway through the fiscal year -- and $500 million in fiscal 2009. The remainder of the money would be used to help offset a more than $1 billion gap between expected revenues and costs next fiscal year.

The Legislature could approve the property tax relief plan and reject the corporate tax changes, but then would have to come up with an alternative funding source.

Patrick is scheduled to present his budget in an address at 7:30 p.m. on Tuesday at Soldiers and Sailors Memorial Hall in Melrose.

Senator Steven C. Panagiotakos, vice chairman of the Senate Ways and Means Committee, said he was fundamentally in agreement with the governor about the pressing need to lower property taxes.

"I'm going to be looking at this with great interest and hopefully support, once we find out all the details," he said.

Senate minority leader Richard R. Tisei, a Republican from Wakefield, congratulated Patrick for trying to find ways to reduce the property tax, but said "the devil is going to be in the details" when it comes to closing loopholes.

"I would be interested in looking at each one of these loopholes on a case by case basis," he said. "Will it leave Massachusetts more affordable or less affordable compared to other states?"