DiMasi rejects tax increase on businesses

House Speaker Salvatore F. DiMasi slammed the door yesterday on Governor Deval Patrick's plan to close so-called corporate tax loopholes, setting up a showdown with the new chief executive on a key portion of his proposal to close a $1 billion budget gap.

DiMasi warned that the plan, which Patrick says would raise $280 million in the coming fiscal year and $489 million the next, would drive businesses from Massachusetts. To make up the difference, DiMasi said, the House will propose cuts in some programs, seek efficiencies in state agencies, and siphon funds from the state's $2.1 billion rainy-day fund.

He said the House plan would include a slightly larger increase in aid for public education than proposed in Patrick's budget, which sought to boost spending for schools by $200 million.

Questioned repeatedly by reporters, DiMasi said the House had yet to devise a way to pay for the increase while closing the projected budget gap and scrapping Patrick's seven proposed changes to the corporate tax code. The House Ways and Means Committee is expected to release its spending plan in mid-April, triggering the next phase of the budget debate.

"I believe that any of these proposals that put more of a burden on business are only going to be adversely affecting our economy, and right now we don't need that," DiMasi told reporters after speaking to the Greater Boston Chamber of Commerce in downtown Boston. "I'm concerned about the growth of our economy in Massachusetts, and I'm not ready to take a step back."

While DiMasi has previously expressed reservations about Patrick's corporate tax changes, his comments yesterday were his strongest to date. Speaking to the chamber, DiMasi drew applause when he declared: "Let me be clear on this important subject: The budget that the House Ways and Means Committee releases on April 11 will not rely on new revenue from businesses."

Patrick, a fellow Democrat, proposed the corporate tax changes last month as a way to help pay for up to $870 in property tax relief annually for lower-income homeowners, one of his central campaign promises. Kyle Sullivan, a spokesman for Patrick, said the governor would continue to push for the corporate tax changes.

"This administration is committed to creating a meaningful partnership with cities and towns and providing real property tax relief for 100,000 households," Sullivan said yesterday. "The governor and lieutenant governor look forward to working with the House and Senate on these and other priorities as the budget process moves forward."

The speaker, who said he called Patrick Monday night to alert him that he would announce his opposition to the corporate tax changes, did not rule out a separate proposal championed by the governor that would end a local property tax exemption for telecommunications companies.

Michael J. Widmer -- president of the Massachusetts Taxpayers Foundation, a business-backed think tank -- has frequently criticized politicians' tendency to dip into reserves rather than find permanent solutions to the state's financial problems. But yesterday he said that given the choice, it would be better to dip into reserves than change corporate taxes to balance next year's state budget.

"The key here is building jobs, so if we hurt job creation with the fourth [corporate tax] increase in five years, we'll just be in a worse situation down the road," Widmer said.

DiMasi's opposition, as the balance of power is shifting on Beacon Hill, dimmed prospects for Patrick's tax plan. Senate President Robert E. Travaglini, who is expected to step down today to explore a career as a lobbyist, had given a cool reception to the plan. Aides to his expected successor, Senator Therese Murray, did not return calls yesterday seeking her position on the issue. Regardless of the Senate's action, the bill would have a difficult time clearing the House without the support of the speaker.

Supporters of Patrick's tax plan said that DiMasi's pronouncement meant that the Legislature will continue to shortchange key areas of state government.

"Eventually, we'll have to face the question of whether allowing half a billion dollars in tax avoidance is a better economic development strategy than investing in education, infrastructure, and local communities," said Noah Berger, executive director of the Massachusetts Budget and Policy Center, which analyzes the impact of the state budget on the poor.

In dismissing Patrick's plan, DiMasi offered an olive branch, saying he would appoint a task force to examine long-term changes in the state's tax code. He said the state's corporate tax burden is one of the highest in the nation as a percentage of personal income and pointed to a survey by CFO Magazine, which ranked the state's overall tax environment 47th in the nation, among the least advantageous to business.

"If you ask any business leader, they need to have predictability in what they do," DiMasi said. "And if we keep changing that [tax] law, they're not going to be making those decisions to expand here in Massachusetts or to come here in Massachusetts and create jobs."

He also reiterated his opposition to Patrick's proposal to allow cities and towns to impose a local meals tax of up to 2 percent.

"I have a lot of restaurants in the North End, as you know," said DiMasi, who represents the neighborhood famous for its Italian eateries. "I like to walk freely down Hanover Street without being accosted by restaurant owners and their employees."

Patrick has said his corporate tax plan will not harm businesses because most of the states Massachusetts competes with have already made the tax changes he is seeking. The most significant change would raise about $136 million next year by ending what he calls the practice of businesses shifting income to out-of-state subsidiaries to avoid Massachusetts taxes. Another change would raise an estimated $99 million by preventing corporations from choosing one status for state taxes and another for federal taxes.

Michael Levenson can be reached at mlevenson@globe.com.