Mass. needs relief on taxes to compete
A few flaws have developed in the state’s rosy revenue picture.
A report by two allied business groups that Massachusetts should reduce some taxes to be more competitive with other states signals that the Bay State’s levy-raising blueprint might require a revision.
State revenue receipts missed the mark by nearly 5% in January, with the $3.834 billion that the Department of Revenue collected falling $192 million, or 4.8%, short of the previous January’s collections, and $185 million (4.6%) below the monthly benchmark.
It’s the first time since June 2020 that tax collections failed to match an administration’s monthly projection.
The $21.643 billion the DOR has collected through the first seven months of fiscal 2023 is $229million (1%) less than actual collections in the same period of fiscal 2022.
Tax receipts are the primary source of funding for this year’s nearly $53 billion state budget, which grew by 10%.
Fiscal 2023 tax collections remain ahead of the year-todate benchmark, but that gap is closing. Heading into January, tax collections were $1.087 billion (6.5%) more than what had been expected to that point. After January, state revenue slipped to $922 million (4.4%) ahead of year-to- date expectations.
That marker will likely become more difficult to sustain, since the Executive Office of Administration and Finance just upgraded the current year’s final revenue estimate by $151 million.
That revision coincides with a Greater Boston Chamber of Commerce and Massachusetts Society of CPAS report that recommends overhauling sections of the tax code.
Quintupling the estate tax threshold and slashing the capital gains tax rate highlight the reforms embraced by one of the region’s leading business groups and an organization representing public accountants.
They maintain that Massachusetts must make these changes to remain competitive in an economic environment of widespread workforce shortages and rising prices.
“This proposal for tax reform is exactly what the Commonwealth — its residents, families, and businesses — need right now,” Greater Boston Chamber of Commerce President and CEO James Rooney stated in part, calling tax relief “urgently needed.”
Their proposal calls for raising the estate-tax threshold from the current $1 million to $5 million, then increasing it annually based on the Consumer Price Index. It also would eliminate language that subjects the entire value, not just the amount over the threshold, to the tax.
Gov. Charlie Baker had targeted the estate tax as a priority in his unsuccessful push for tax reformlast year; lawmakers gave initial approval to a new $2 million threshold but ultimately shelved their plan.
The Massachusetts Taxpayers Foundation has described our state as an “outlier among the states” on the estate tax, noting that the commonwealth’s and Oregon’s $1 million taxation thresholds are the lowest among the 12 states that exact such a tax.
Gov. Maura Healey mentioned tax relief as a top priority while she was on the campaign trail.
Healey might find some resistance from her party’s lawmakers.
In November, Roll Call noted that one chamber of the Democrat-dominated Legislature rejected a capital-gains tax cut and the other a higher estate-tax threshold.
The Senate rejected an amendment that included a reduction in the capital gains tax from 12% to 5%, while the House rejected an amendment that would exempt the first $2 million of a person’s estate from the state’s tax before distribution to any beneficiary.
Eileen Mcanneny, president of the Massachusetts Taxpayers Foundation, has noted that the risk of losing the commonwealth’s aging population to other states like Florida and New Hampshire has created a ripple effect on other state revenues, including capital gains taxes, interest, dividends, and sales tax.
The Boston Herald reported last year that Massachusetts lost out on $20.7 billion in adjusted gross income from 1993 to 2018.
The tax- collection dip might just be a blip on the state-revenue radar, especially with the millionaires’ and sports-betting taxes now in play.
But estate and capital gains burdens constitute reasons why Massachusetts taxpayers claim full-time residence status in more tax-friendly states.