Politics

Here’s how you could save under Gov. Healey’s tax relief proposal

Inside the governor's $742 million plan to save money for taxpayers.

Gov. Maura Healey. Lane Turner / The Boston Globe

February 27, 2023

Affordability & Massachusetts

With an intent to make Massachusetts more affordable and competitive, Gov. Maura Healey on Monday unveiled her anticipated tax relief proposal, a $742 million package that would up key taxpayer supports such as through a $600 child and family credit, while also lowering the state’s estate taxes and slashing the short-term capital gains tax.

Healey said the package centers on ensuring relief for families, renters, seniors, commuters, farmers, and other residents feeling the pinch of the state’s high cost of living, which has driven some away, including businesses, from the Bay State in recent years.

“Simply put, we’re not leading when it comes to affordability,” Healey said during a press conference at the Demakes Family YMCA in Lynn. “Too many other states are passing us by, and that hurts our ability to compete. That’s why we’re prioritizing these reforms. Our administration is confident that the package we put forth today will make significant progress on the goals of driving affordability, driving competitiveness, and driving equity in Massachusetts.”

Among the plan’s core pillars is a new benefit, the Child and Family Tax Credit, which administration officials said is the combination of two existing benefits: the Household Dependent Tax Credit and the Dependent Care Tax Credit.

Healey said through providing families with a $600 credit per dependent — applicable to children 13 years old or younger, people with disabilities, and senior dependents over the age of 65 — and removing the existing credit cap, an estimated 700,000 taxpayers and 1 million-plus dependents stand to benefit from this mechanism alone.

“The Child and Family Tax Credit would make sure that large families are not excluded from receiving the full amount of support they need, and it will benefit Black and brown families who are more likely to rely on informal child care and have been left out of pre-existing credits,” the Cambridge Democrat said. “Our administration believes that this new benefit will have significant impacts in helping families keep up with rising costs and making ends meet.”

Healey stressed her administration took a close look at how the commonwealth stacks up against other states and made sizable reforms, especially for two taxes where Massachusetts is an outlier: short-term capital gains and the estate tax.

Healey called the proposal a “really sensible tax relief package” covered by her budget plan.

“We are putting money back in the pockets of people who really need it most in addition to providing some other reforms that will really help us as a state be more competitive,” she said.

The Healey administration will formally file its proposal alongside its first-ever budget proposal for fiscal year 2024 on Wednesday.

Boston Mayor Michelle Wu told WBUR on Monday morning she had not seen the plan ahead of the announcement, but was glad to see the governor following through on her campaign promise to help offset taxes.

“Certainly, families are struggling and need relief, and our tax code is one way where we can provide that targeted relief,” Wu said on “Radio Boston.” “I do know that we also want to ensure that there are revenues left over for the long-term planning and infrastructure, that transportation and education and all of those priorities that sometimes have been underfunded because they are more long term.”

Notably, Healey’s proposal, in some instances, follows closely the failed package put forth by her predecessor, Republican Gov. Charlie Baker, last year, which also included reforms to the state’s estate tax and a reduction of the capital gains component.

Both could pose challenges for the new administration in the Democratic-controlled Legislature.

On Monday, the Raise Up Massachusetts coalition, which led the successful ballot campaign last year to pass the so-called “millionaires tax,” decried the proposed estate and capital gains tax reforms.

“We are deeply concerned that proposed changes to the estate tax and short-term capital gains tax rate would deliver an enormous windfall to the richest members of our society, while depriving the state of hundreds of millions of dollars in much-needed revenues,” the coalition said. “The proposed changes to the estate tax would give a few thousand of the wealthiest families in the state a six-figure tax cut, while the cut to the short-term capital gains tax rate would reward wealthy day traders and real estate speculators for their risky financial maneuvering.”

The coalition called the changes “incredibly regressive policies” that would undermine the goal of a fairer tax system as approved by voters in the ballot question in November “while placing the state at risk for catastrophic budget cuts in future years.”

There were some indications though Healey has seeds of support from the state’s business owners.

“There is much to support in this tax package, and it certainly represents a good first signal that the administration will work with the business community, especially with the inclusion of capital gains and estate taxes,” James Rooney, president and CEO of the Greater Boston Chamber of Commerce, said in a statement. “However, there remains much work to do to restore Massachusetts’ competitiveness to keep residents and businesses here, and we look forward to working with the legislature on this tax package and the budget in the coming months.”

The nonpartisan Massachusetts Taxpayers Foundation said Healey’s plan noticeably fell short of the foundation’s own $1.3 billion tax relief vision.

But the foundation remarked Healey’s proposal is significant and described the package as “a strong start to tax relief discussions this year.”

“At the same time, it is important to acknowledge that these proposals are not a silver bullet for making Massachusetts a place that attracts and retains people and investment,” the foundation wrote in a report. “Proposals to reduce costs on employers and investments must also be part of our coordinated efforts to spur equitable economic growth in the Commonwealth.”

Here is how taxpayers could save in a few key ways under Healey’s plan:

Introducing the Child and Family Tax Credit

Seeking to simplify the state’s tax credits for dependents, Healey put forward this new benefit that would provide a $600 refundable credit for qualifying dependents.

“An expanded and simplified structure would provide relief for all income levels while getting the neediest families the cash benefit of a fully refundable credit,” the administration wrote in a summary of the policy proposal. “It would provide support for families without requiring potentially burdensome demonstrations of expenses and assist the most burdened families by uncapping the count of qualifying dependents. The credit would replace two interrelated credits that are more complex and smaller than the proposed credit and are capped at two dependents.”

Reforming the estate tax and and short-term capital gains tax

While Healey positioned much of her proposal to benefit working- and middle-class families, there are some components that could benefit the state’s wealthier residents.

The governor said her administration targeted two tax rates that make Massachusetts an outlier.

For starters, Healey is proposing to eliminate the estate tax for all estates valued up to $3 million. She noted Massachusetts is one of only 12 states with such a tax and shares the lowest threshold for taxation among the dozen, except for Oregon.

Currently, estates with a gross value over $1 million are subject to the tax, starting at a rate of 0.8% up to a marginal rate of 16%.

“The administration’s proposal would establish a non-refundable $182,000 credit for each estate, without a tax increase on estates of any size,” officials wrote in their policy summary. “This credit would have the effect of eliminating all taxes on estates of up to $3M in net taxable value and would represent $182,000 of tax relief on larger estates. Since 70% of estates now paying tax are under $3M, this change would eliminate taxes for most estates – and would help keep Massachusetts competitive.”

For short-term capital gains, existing law taxes assets held for less than one year at 12%.

Healey’s proposal looks to slash that rate down to 5% — the same rate for nearly all other forms of individual income.

“This change has no net cost to the budget, as capital gains taxes above a threshold of approximately $1.4 billion are not available to the budget under current law,” the administration wrote. “Therefore, this change can bring the tax on capital gains more in line with other states, without requiring any tradeoff in terms of other potential budget uses for the funds.”

Boosting the deduction for renters and credits for low-income homeowners and senior renters

As Bay State renters have to contend with high housing costs, Healey’s plan would, if approved, up the deduction renters are entitled to receive.

Renters right now are able to deduct up to 50 percent of the cost of rent for their primary residence up to $3,000. Healey’s plan would increase the cap to $4,000.

The proposal would also double the maximum Senior Circuit Breaker credit from about $1,200 to approximately $2,400, according to the Healey Administration.

“This credit, indexed to inflation, provides critical relief to low-income homeowners and renters aged 65 or older,” officials wrote. “Equal to the amount by which a homeowner’s property tax payments in the current tax year exceeds 10% of the taxpayer’s total income, up to a maximum credit amount, the expansion of this credits’ cap would recognize the rising cost of housing for many of our most vulnerable residents.”

The tax relief package also contains other targeted tax relief measures, including making regional transit passes and bike commuter expenses eligible for tax deductions.