MassBudget Statement on the 2023 Tax Relief Package

Today, the conference committee presented the biggest package of tax changes in 15 years. We commend them for taking important steps to improve affordability for low- and middle-income households in Massachusetts. At the same time, our state fails to move toward racial and economic equity when we give away hundreds of millions of dollars to the richest families and large, profitable corporations. These dollars would be far better invested in a future for the Commonwealth that benefits everyone.

Several measures in the package do advance equity. The package closes the married filing separately loophole, a simple, evidence-based solution to eliminate an opportunity for high-income tax avoidance. Closing this loophole protects Fair Share revenue, preventing the loss of up to $600 million annually in education and transportation funding. Conferees deserve praise for taking this important step. The conferees likewise improved our tax system by reforming the 62F tax cap provision. The 62F tax cap law remains a deeply flawed policy that may arbitrarily reduce public investment in the future. However, it will no longer worsen income disparities in the process.

Several measures in the conference package will put dollars in the pockets of low- and middle-income people, improving affordability for hundreds of thousands of households throughout the Commonwealth. These measures include increases to the state Earned Income Tax Credit (EITC), the Senior Circuit Breaker Tax Credit, and the Child and Dependent Tax Credit (CDTC). The conference package also boosts the existing renters’ deduction, though the increase will put a maximum of just $50 more dollars into renters’ pockets annually.

While creation of the CDTC will help Massachusetts families, conferees did not opt for the more generous of the two CDTC proposals. The result, though a substantial improvement, still does not approach the generosity of several other states’ child tax credits. It is also a missed opportunity that the credit will not be indexed to inflation. Without indexing, the value of the CDTC will erode quickly. Support for Massachusetts families via the CDTC could have been more meaningful.

The conferees chose against the deeper estate tax cuts that were part of negotiations. While any estate tax cut will overwhelmingly benefit only a small number of the state’s wealthiest families (which are overwhelmingly white), the version included in today’s tax package is the least costly and does not provide the largest benefits to estates valued over $2 million.

By including a reduction in the tax rate applied to short-term capital gains, the conference package provides another substantial benefit that goes overwhelmingly to the very highest income households in the state. Nationally, over three-quarters of short-term capital gains income goes to the top 1 percent of households, while less than 3 percent goes to the bottom 80 percent. While this tax cut is an unnecessary and unfortunate change to our state’s tax code, by reducing the rate to 8.5 percent rather than to 5 percent rate, as was originally proposed, conferees preserved tens of millions of dollars of highly progressive annual revenue.

Lastly, with the shift to single sales factor apportionment (SSF), the conference package provides another costly corporate tax break. SSF is a method for determining how much of a corporation’s profits will be taxed which only considers its sales in Massachusetts. The change will give many businesses with customer bases in other states a substantial tax cut, resulting in a loss of $92 million a year for the Commonwealth. Instead, the benefits will flow to large, multi-state corporations and their disproportionately high-income shareholders.

While this package is not a clear win for advancing equity, it is an improvement over some earlier proposals. There is much to build on in the years ahead.


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