Hi ,
You may have seen in the news that the Governor signed into law a $1 billion tax cut package yesterday, euphemistically called “tax relief.” This is a bill I’ve been fighting against for over 1 year and 9 months since our former Governor Charlie Baker filed the initial version of the bill. I will break down the bill, including the good, the bad, and the ugly; as well as what I, as your rep, tried to do in my power to minimize the most deleterious components and impact of this bill.
Before I dive in, I want to share a few definitions to avert any potential confusion, especially because these terms often have a wide range of interpretations. -
Regressive tax - a tax is regressive if the share of income paid in that tax decreases as income increases. In other words, a regressive tax exacerbates income and wealth inequality by making the poor poorer and the rich richer.
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Progressive tax - a tax is progressive if the share of income people pay in that tax increases as income increases. A progressive tax change makes our tax code fairer through income redistribution via public goods (all the things government funds: schools, roads, the MBTA etc.).
As your rep, I deeply believe that making our tax code more progressive AND increasing taxes on the wealthy and corporations is foundational to housing justice, fully funded public education, transportation, and a livable climate.
Overall this bill unfortunately moved us away from what I fight for and what I believe in because it cuts taxes by over $1 billion. While some of these tax changes are progressive (in that it makes our tax code fairer), tax cuts have material consequences on critical state funded programs. To give one very important consequence of tax cuts that hits so close to home, the Governor last month vetoed funding to the Community Action Agency of Somerville, which would have lost a total of $1.4 million, most critically slashing funding to Head Start, Eviction Defense, and Tenant Organizing programs. I am thrilled (and relieved!) to share that the House voted last Wednesday to override the Governor’s veto.
While I don’t win every shot I take in this role, I will continue to fight for increasing taxes on the wealthy and corporations to fund affordable housing, the MBTA, public schools, and a MA green new deal.
As a visual aid, I’ve included the largest tax changes in this bill on a scale of relative regressivity to progressivity, produced by Mass Budget Policy Center.
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(This chart has been updated to reflect the latest estimates. Here is the original graph) |
The Good
Before diving into the relatively progressive tax changes, the biggest impact of this bill is language to protect revenue from the Fair Share Amendment, aka, The Millionaire’s Tax, which voters passed last November. The bill closes the single-filing loophole, which will prevent between $200 million to $600 million in tax avoidance (according to estimates). This is significant because the Fair Share Amendment is estimated to increase state revenues by about $2 billion per year.
Secondly, the bill has language to make the decades old 62F law less regressive if triggered in the future. Both the single-filing loophole and 62F are each standalone newsletters because of their complexity and so I’ll keep my comments brief but feel free to learn more by following the links or email me if you’d like me to write a follow up newsletter on these topics.
Now onto the relatively progressive tax cuts (as assessed by Mass Budget Policy Center). Here is a short description of each tax cut: -
Child and Dependent Tax Credit - Increases credit from $180 per child or dependent per year up to $440 per child or dependent per year.
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Earned Income Tax Credit (EITC) - Increases the EITC to 40% of the federal credit, an increase from the current law of matching up to 30% of the federal credit. This applies to households earning below the $57,000 threshold.
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Senior Circuit Breaker - Increases the maximum senior circuit breaker tax credit to $1,500 (up from $750) and allows for a cost of living adjustment resulting in a tax break of up to $2,400.
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Rental Deduction - Increases rent deduction cap to $4,000, up from $3,000. The deduction is 50% of your rent up to the cap.
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Low-Income Housing Tax Credit - Increases annual cap on low-income housing tax credit from $40 million to $60 million and will remain permanent by removing current sunset provision.
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Commuter Deduction - Tax deduction of up to $750 for tolls, all MBTA fares and passes, RTAs, bikeshare memberships, and bicycle purchases, improvements, repairs, and storage. Previously this deduction only applied to tolls and weekly/monthly MBTA commuter passes.
Here is a side-by-side comparison of the relatively progressive changes in this package: |
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* This is the total annual cost following full implementation of the tax change |
The Bad
There are components of this bill that are very regressive in that they largely benefit the very wealthy or corporations on several orders of magnitude per beneficiary than any of the progressive tax cuts. This includes the Estate Tax ($213 million per year), Short Term Capital Gains Tax ($49 million per year), the Single Sales Factor ($85 million per year), and HDIP ($30 million per year). As an example with the estate tax cut, estates worth over $3 million are estimated to receive $182,000 more, compared with the ~$36 a month a family receives per dependent.
A lot of my work on this bill focused on stopping the estate tax cut, which is a generational wealth tax and the only true wealth tax that makes a dent in addressing wealth inequality, not to mention this tax cut is expected to worsen our already immensely large racial wealth gap. In addition, it is the largest regressive tax cut in terms of total magnitude in the package. I filed proposals to reduce the tax cut by over a half, although ideally, I would have preferred to keep the estate tax untouched. You can read the details of my proposal here, as well as a comparison of the House, Senate, and Governor’s proposal on how extremely large estates benefit from these tax changes here. For reference, the final version of the bill ultimately landed on the Senate version which out of the three proposals was the most progressive version.
Short term capital gain tax is a tax on profits from investments that have been held less than a year. Examples include day trading and flipping real estate investments. It’s important to contrast capital gains tax, tax on investing wealth, with income tax, tax on your labor from a hard day at work. Most often capital gains is taxed at a lower rate than income tax, which is one of many ways the tax code exacerbates wealth inequality. This was famously demonstrated by investor Warren Buffett who pointed out that he pays a lower tax rate than his secretary. In summary, the tax rate was cut from 12% to 8.5% in Massachusetts, which was a halfway compromise between the House and Senate versions of the bill.
Single Sales Factor is a way of calculating taxes on corporate profits that allows large multi-state and multinational corporations to shift more of their income beyond the reach of state taxation. Up until this tax change, Massachusetts had an exceptionally progressive policy which has been modified to be more similar to other states.
Finally, Housing Development Incentive Program (HDIP) Tax Credit is a tax change that I voted against when it came up as an amendment because it lacks any provision to invest in some percentage of affordable housing. This means that we are handing over cash to developers to develop market rate housing. Supporters of HDIP argue that this is needed investment in gateway cities, but I remain deeply concerned that only investing in market rate housing will do nothing to help the affordable housing crisis and lead to even more gentrification. You can read more about MLRI’s analysis of HDIP here.
You can see how the “bad” components and the total price tag of the bill compare across the three versions of the bill (Governor, House, and Senate) and what was ultimately negotiated in conference committee to become the final version of the bill signed into law yesterday. |
The Ugly
The ugly is fairly straightforward, which is the total cost of the bill coming to $1.016 billion upon full implementation (based on FY27). While one could argue that only $377 million of it is regressive and there are progressive components of the bill, nevertheless, cutting $1,016 billion without offsetting the loss in revenue with an increase in other taxes is abominable. This was most notably highlighted when on the day we last voted on this package in the House was the day we found out the new Green Line Extension is so defective that trains are forced to move at walking pace. Another harrowing example is how 400 Somerville students at the Winter Hill School are continuing to be displaced when a piece of concrete fell inside a stairwell. These are just two local examples of the deep consequences of decades of austerity, tax cuts, and disinvestment in our communities, public infrastructure, and wages for working people.
This is why I deviated from some progressive advocates who celebrated the progressive tax cuts in this package, while I agree these changes make our tax code fairer, it comes at an immense cost and puts us on the wrong track by reducing state revenues by so much.
I don’t always win every shot I take in this role, and this bill is an unfortunate example of that. That said, I believe I did everything in my power to reduce the revenue impact of this bill by advocating publicly during the Revenue Committee Hearings, where I asked hard questions of Governor Baker and Governor Healey when they each presented their version of the bill. In addition, I worked closely with advocates from the Raise Up Massachusetts coalition and Mass Budget Policy Center to file alternative proposals and advocate within the State House. Despite our best efforts, it was incredibly hard to change a proposal that was championed by our Governor(s) and by House and Senate leadership.
In terms of my votes, I voted no on any tax cuts or changes I considered regressive when there was still room for negotiation to improve the bill. I voted yes on the conference committee report of the bill last week because this was a vote on the compromise worked out between the House, Senate, and Governor’s versions of the bill (see table above). At this stage of the bill drafting process, what is on the negotiation table is landing somewhere between these three versions of the bill. Within those three possibilities, we were able to get the most progressive version of the estate tax, something I worked extensively on and was largely able to reduce the regressive components of the bill while increasing the total progressive components of the bill. I also kept a commitment I made to ensure that Somerville did not face devastating cuts. As such, at this phase of the bill drafting process I chose to vote yes. If you have any other questions or concerns about this, please don’t hesitate to reach out.
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The Small Potatoes
Finally, there are also a number of smaller provisions (each worth less than $10 million). These were included in either the previous House or Senate versions of the bill as amendments. I was unable to find an analysis or assessment of their relative and overall progressivity but for completeness sake I’ve listed them here with their total amounts in case they are of interest you can look further into them: - Student Loan Payment Assistance - $2 million
- Lead Paint Abatement Credit - $3 million
- Title V Septic Credit - $4 million
- Dairy Farmer Tax Credit - $6 million -$8 million
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Apprenticeship Tax Credit - $2 million
- Locally Produced Cider and Wine Tax Rate - $300,000
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If you made it this far, wow and thank you! I hope this was a helpful summary of the tax cut package. Please don’t hesitate to email me if you have any questions on this bill or on any issue. It’s truly an honor to serve our community. |
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