Mass. House votes in favor of tax increases for smokers, corporations

April 10, 2008 10:47 PM Email| Comments (0)| Text size – +

By Matt Viser, Globe Staff

The Massachusetts House tonight approved $392 million in tax increases for smokers and the state’s largest corporations, giving Governor Deval Patrick a major political victory while drawing fire from business leaders.

The legislators’ 131-23 vote capped a long crusade by Patrick and his allies in the Legislature, who convinced House Speaker Salvatore F. DiMasi to back away from a more business-friendly plan and approve the state’s most momentous tax hike since 2002.

It also ended two days of furious lobbying by banks and business groups and marked a legislative victory by the governor, who has been trying to improve his fortunes after the defeat of his plan to license resort casinos.

‘‘We appreciate the House’s willingness to move closer to the governor’s proposal,’’ said Doug Rubin, the governor’s chief of staff. ‘‘For us to see that enacted is a good example of everybody working together.’’

The proposals would tighten corporate tax laws and prohibit several practices the governor called ‘‘loopholes,’’ bringing in $217 million next year. It would also raise $175 million by increasing the state’s cigarette tax by $1 per pack, to $2.51.

The cigarette hike would give Massachusetts the second-highest cigarette tax behind New Jersey, although New York legislators this week voted to trump both states with a $2.75-per-pack increase.

Proponents argued that the increase would fill state coffers and discourage residents from smoking, while critics said the state would lose money from smokers, who would travel to New Hampshire and Rhode Island to buy cheaper cigarettes. The average price of a pack of cigarettes in Massachusetts would go up nearly 20 percent, to $6.41.

The Senate, which has been supportive of the tax hikes, plans to take up the proposals within weeks. If there aren’t significant differences, they could be signed by the governor shortly after.

In exchange for tightening the state’s corporate tax codes, Patrick had proposed gradually reducing the state’s corporate tax rate from 9.5 percent to 8.3 percent by 2012. DiMasi went further, proposing a reduction to 7 percent by 2011.

The plan approved by the House strikes a compromise by lowering taxes from 9.5 percent to 7.5 percent by 2012.

After a flurry of high-powered lobbying by banks, the House also added a provision to reduce the tax rate for financial institutions, which under earlier proposals were exempt. Their tax rates will be reduced from 10.5 percent to 9 percent by 2012.