Massachusetts lawmakers have proposed a series of tax policy changes in 2022 and 2023 that would reduce public revenue by large amounts, and all of which include major elements that would worsen wealth and racial inequality—providing the most benefits to the most affluent households.
The table below compares the major, permanent tax cut packages (with regressive cuts in red) proposed so far.
|Proposals for Major, Permanent Tax Cuts in 2022 and 2023|
|Gov. Baker (2022)||House (2022)||Senate (2022)||Gov. Healey (2023)||House (2023)|
|Short-Term Capital Gains||$117M||$117M||$117M|
|Single Sales Factor||$79M|
|No-Tax Filing Threshold||$41M|
|Child and Family Tax Credit||$167M||$130M||$130M||$458M||$458M|
|Senior Circuit Breaker Credit||$60M||$60M||$60M||$60M||$60M|
|Earned Income Tax Credit||$91M||$92M||$92M||$91M|
|Total major permanent tax cuts||$784M||$524M||$502M||$950M||$1.076B|
|Tax cuts favoring wealthy||$348M||$207M||$185M||$392M||$427M|
Not included here are one-time changes or other small proposed tax changes. For example, the House and Senate proposed one-time $500 payments for certain income groups in their 2022 tax packages. Some tax cut proposals would have a delayed impact on revenues because changes would be phased in over a few years or because there can be a lag before they take effect. Due to these delays, the Fiscal Year 2024 impact of these cuts may be smaller than the permanent amounts that are listed here. Several small tax cuts, such as for replacement of septic systems, live performance events, and alcoholic cider, are not included.
Estate taxes are paid on the transfer of wealth after someone dies. Disparities in wealth are greater than disparities in income, especially between racial groups. Estate taxes are the only tax that targets and directly reduces intergenerational disparities of wealth. Typically, much of the growth of funds in an estate have also avoided previous taxes because capital gains reset to zero for tax purposes when the owner holds assets until the end of their life. Massachusetts currently only taxes estates valued above $1 million. In 2023, the House followed former-Governor Baker in proposing to exempt estates up to $2 million from tax and also exclude $2 million in estate value from larger estates — a tax cut worth the most for the largest estates, reaching $320,000 in tax cuts for any estate over $12 million. The proposal by Governor Healey would exempt estates below $3 million from taxes and provide larger estates with a (larger) tax reduction of $182,000. The Senate proposal in 2022 would have exempted all estates under $2 million from tax and provide larger estate with a tax reduction of $99,600.
Short-term capital gains taxes are the tax on profits from investments that have been held less than a year. Proposals would cut the tax rate on these profits from 12 percent to 5 percent. The House proposal would phase in over two years with an anticipated $67 million cost in the first year. Due to the highly concentrated ownership of wealth, especially in the form of financial and businesses assets, the short-term profits realized from selling these investments are extremely concentrated among the wealthiest households. In Massachusetts, the highest-income 1 percent of households would receive an estimated 77 percent of short-term capital gains cuts – an average of over $7,000 apiece. While 86 percent of tax filers in the top 1 percent would receive this tax cut short-term capital gains, only 8 percent of tax filers in the bottom 80 percent do so (with an average benefit less than $45 on average for those receiving a tax cut in this group. Analysis conducted by the U.S. Treasury shows that this tax cut would worsen racial inequality. Nationally, 92 percent of tax breaks on capital gains go to white families, compared to 3 percent to Hispanic and 2 percent to Black families
Single Sales Factor is a way of calculating tax on corporate profits that allows large multi-state and multinational corporations to shift more of their income beyond the reach of Massachusetts taxation. Since corporate ownership is vastly concentrated in the hands of richer and whiter households, this tax cut increases economic and racial equity.
No-tax filing threshold is the income amount below which tax filers are not required to file. Currently this applies to single filers with income below $8,000 or married tax filers with joint income below $16,400 (plus an additional $1,000 per dependent. Governor Baker proposed increasing the no-tax threshold to the higher federal thresholds, which would help some very low-income people who would otherwise need to pay income tax. With stronger low-income tax credits, however, more low-income families will have an incentive to file taxes. so the benefits could be muted. Governor Baker proposed to raise the threshold to the federal level. Black and Latinx households, who are disproportionately represented among residents with very low incomes due to the ongoing legacy of structural racism, would disproportionately benefit by no longer being required to file income taxes.
The Child and Family Tax Credit would consolidate and increase two existing refundable tax credits. It reduces a tax filers tax bill and sends a check to the tax filer if there are credits remaining after taxes have been paid. A credit is received for each dependent child below 13 years of age 13 and for adult dependents who live at home and are over 65 years or have a disability. Governor Healey proposes to more than double the credit to $600 each eligible dependent, eliminate the cap on the number of eligible recipients in a household, and index the benefit for inflation. The House plan would implement the same benefits over three years, introducing the revenue losses roughly in three equal increments. The fixed amount of the credit for each eligible dependent delivers a benefit that is especially meaningful to low and middle-income households. The credits can be particularly helpful for families with several young children or those combining care of children with care for a parent.
The current rental deduction enables a renter to deduct $3,000 of their income from the amount subject to tax — worth up to $150 off a renters income tax bill. Governor Baker proposed raising this deduction to $5,000, and increase of $2,000. The other proposals would raise the deduction to $4,000, which could save tax filers who rent up to and additional $50 on their tax bill. This tax cut would be somewhat progressive: almost half of benefits would go to the bottom 40 percent of tax filers. Moreover, Black and Latinx households are more likely to rent than whites and therefore are more likely to benefit from this deduction.
The Senior Circuit Breaker for taxpayers age 65 or older if their property tax payments (or a quarter of their rent payments) exceed 10 percent of their income for the year, they can receive a credit of up to $1,200 The various tax proposals would roughly double the credit to about $2,400. Seniors are not eligible if their income exceeds about $100,000 for couples.
The Earned Income Tax Credit (EITC) is a refundable tax credit that adds to the income of working households whose earnings fall below a certain threshold, about $60,000 for a married couple with kids. The program has been very effective at keeping working families from falling into poverty. While most EITC recipients in Massachusetts are white, the credit advances racial equity because the share of eligible Black and Latinx recipients is greater than these groups’ share of the population.