OCTOBER 12, 2022 — MY MESSAGE TO ALL MEMBERS OF THE GENERAL COURT
Dear Honorable Colleagues,
I invite you to co-sponsor HD.5394, An Act Putting More Money In More People's Pockets.
This legislation caps Ch. 62F tax credits at $6,500 per taxpayer, and it evenly redistributes the resulting excess to all other eligible taxpayers.
$6,500 is proposed as the maximum because it is the expected credit due to a taxpayer with $1 million in income in Tax Year 2021. By limiting credits for those with incomes greater than $1 million, we can craft better economic policy while at the same time honoring the fact that a $2.9 billion Ch. 62F excess has been certified by the Auditor.
In addition, this bill resolves the legal ambiguity surrounding Gov. Baker's unprecedented plan to issue tax credits in the form of advance tax refund checks.
If the legislature acts on this bill, or if we incorporate these concepts in another vehicle such as the economic development bill or the closeout budget, we will be able to say to our constituents: "We took action to authorize the advance refund checks, and we did so in a way that returns the entire $2.9 billion and delivers a bigger refund to 99.4% of eligible taxpayers."
I know we are all thinking about the economic hardships that so many of our constituents are currently facing. The rising and exorbitant costs of housing, childcare, healthcare, food, energy, fuel and heating, and overall economic uncertainty make this a critical time for the legislature to be shaping economic policy.
And yet, a review of the situation shows there are serious problems with how Ch. 62F was drafted, with how the limit is set and how the excess is distributed, and with how the Governor plans to issue advance refund checks without legislative approval.
Consider the following:
62F was triggered not as a result of any tax hike, but due to troubling circumstances in the economy. Ch. 62F is a "tax cap" designed to prevent excessive tax hikes. But we haven't passed any broad-based tax increases. In fact, the state income tax has been incrementally reduced down to its current rate of 5%. The truth is 62F was triggered largely due to unprecedented income inequality, the ongoing crisis of inflation, and other unforeseen factors and problems.
62F delivers a huge cash windfall to the state's top income earners and very little to lower-income workers. If we don’t act, roughly 26% of the $2.9 billion excess will go to taxpayers who earned more than $1 million in income in 2021. Taxpayers with incomes of $1 million or more will get refunds of about $22,000 on average. On the other hand, taxpayers in the bottom 20% of incomes will get refunds of about $9 on average. In this time of economic hardship for so many, this sort of disparity is unconscionable.
62F is rigged against the middle class and all working people. The 62F revenue-growth limit is set by wage and salary information and doesn't consider capital gains and non-withheld income. Wealthy folks see much of their income in the form of capital gains, while most working people see most of their income in the form of wages and salaries. As a result, we have a revenue limit that doesn't account for how wealthy people make a lot of their money; it's now being triggered because wealthy people are doing better than ever, and the result will be to deliver a big cash windfall to wealthy people.
62F is rigged against poor people and low-income workers. The 62F formula considers sales tax and gas tax receipts on the collection side, but once triggered, it only provides a tax credit to income-tax payers. Poor folks and lower-income workers don't pay state income tax, but do pay a significant share of their income in sales and gas taxes. With spiking inflation and high gas prices, lower-income folks are now paying more in sales and gas taxes than ever before — this helped trigger Ch. 62F's revenue-growth limit — but now, the refunds are only going to those who pay income tax, making this a total ripoff for our lower-income constituents.
62F never contemplated the tax changes we recently made relative to pass-through business entities. This means much of the $2.9 billion excess is actually an illusion. When Trump and the GOP Congress passed the so-called Tax Cuts and Jobs Act, they limited the State and Local Tax (SALT) Deduction to $10,000. To mitigate the impact this had on pass-through business entities, we changed the law to allow personal income tax credits for certain business owners. This means most of the 62F excess is illusory. It shows up as revenue this year, but can be claimed in the form of additional tax credits in the future.
In certifying the 62F excess, Auditor Bump wrote: “I would underscore for the Legislature and the public one key element in the FY22 revenue increase... The change in the taxation of so-called pass-through business entities, which just took effect last year, generated $2.25 billion in revenue, much of which has yet to be claimed in the form of personal income tax credits and deductions by the business owners.”
62F calls for tax credits to be available at next year's tax filing season, but Gov. Baker has announced an unprecedented plan to appropriate advance tax refund checks. In 1987, the SJC reviewed Ch. 62F and found the voter-enacted law works precisely because it provides for tax credits and not appropriations. See Tax Equity Alliance For Massachusetts v. Commissioner of Revenue. However, Gov. Baker has dispensed with precedent and announced his own plan to issue tax credits in the form of advance tax refund checks. Legal experts have raised doubts as to the constitutionality of this scheme since only the legislature has the power to make appropriations, and advance refund checks look more like an appropriation than a credit. HD.5394 resolves this ambiguity by explicitly authorizing advance tax refund checks.
In closing, I would note that several of my constituents have suggested they would rather see us direct the 62F money toward fixing the MBTA and addressing the housing crisis. Others have suggested we should scrap the law altogether. While I can agree with each of these sentiments, I also recognize the Auditor has certified the $2.9 billion excess and the Governor has created an expectation for advance refund checks for the current tax year and has posted a refund estimator on the state website. In this context, I offer this modest proposal to reshape the 62F distribution into something that better resembles good economic policy and does significantly more for a lot more of our constituents.
Please do not hesitate to reach out to me or my staff with any questions or concerns.
Yours in service,
Rep. Mike Connolly