How I am standing up for better economic policy in this moment of economic turmoil


Dear Cambridge and Somerville Constituents —

In late July, just as formal sessions for the 2021-22 legislative term were coming to a close, it became clear to legislators and the public that an obscure, Reagan-era "Tax Cap Law" was likely to be triggered in the coming months. 

This law, Chapter 62F, "Limitation on the growth of state tax revenues," was narrowly-approved by Massachusetts voters as a ballot question in the 1986 general election. The 62F revenue limit was triggered the very next year, in 1987, in the amount of $29 million.

Ch. 62F was not triggered again at any point over the next 35 years and was largely forgotten, as the state has repeatedly cut income taxes and business taxes, rendering the 62F limit largely irrelevant.

The reason Chapter 62F has been so obscure is because the anti-tax zealots who led the effort to pass Proposition 2 and 1/2 in 1980 and who went on to win a long string of victories in the fight against progressive taxation basically succeeded beyond their wildest dreams here in Massachusetts.

Folks like the late Barbara Anderson, former Governor Bill Weld, and current Governor Charlie Baker have presided over decades of tax cuts and budget cuts which ultimately led to today's transportation safety crisis, the ongoing affordable housing and homelessness emergency, and struggles to fully fund public education and other government services and programs across the state.

This underscores the most important thing of all to understand about Chapter 62F — for while it has been triggered once again this year, it is not as a result of any tax hike.

Rather, the 62F revenue limit has been triggered due to underlying problems in the economy and certain unforeseen changes in the tax code.

Right now, Governor Baker appears to be operating outside the letter the law in sending out tax refund checks — and for my part, I've spent the past two months pushing a proposal that would at least make these checks more equitable, by capping the enormous cash windfall that's about to go to people who reported incomes greater than $1 million last year, and by delivering more financial relief right now to the 99.4% of us who don't have million-dollar incomes.

My proposal to address the Ch. 62F situation was recently endorsed by the Boston Globe Editorial Board

To understand why the current situation is so problematic, and to learn a lot more about Chapter 62F and what I've been trying to do about it, please continue reading this email. In addition, this email will also provide an update on the $3.7 billion economic development bill that passed the legislature just last week. That bill is now on Governor Baker's desk. Thank you, as always, for being an informed and engaged constituent!


So how does Chapter 62F actually work?

It starts by looking at the average growth of wages and salaries in Massachusetts based on data from the past three years to determine a revenue-growth limit that's based entirely on the growth of wages and salaries.

That might sound logical — but it's actually a poor metric because wage and salary information does not capture how very wealthy people make most of their money, which is through capital gains income.

In recent years, the very wealthy have seen astounding returns on their investments, and they are now capturing an ever-increasing share of overall economic growth. Indeed, income and wealth inequality has reached unprecedented, historic levels in the United States, and it is particularly acute right here in Massachusetts.

Moreover, the 62F revenue-growth limit is further skewed by the fact that it doesn't consider the massive expansion of federal unemployment benefits that occured during the first years of the pandemic. As MassBudget has pointed out, recipients of UI paid taxes on these benefits in FY 2022, and they further increased state revenues as they spent those UI dollars in the economy, thereby paying sales and gas taxes and boosting the taxable incomes of others through rents, etc. But this unprecedented dynamic isn't accounted for by a law that was enacted back in 1986.

In sum, 62F sets a limit on how much money the state can collect in revenue based only on wage and salary data. This ignores how rich people make most of their money (through capital gains), and it also ignores how poor people pay most of their taxes (through sales and gas taxes, etc.).

For Fiscal Year 2022, it has therefore been determined that the sum of all state revenues was $2.94 billion above the limit set by the 62F formula. Therefore, under existing law, $2.94 billion must now be returned by the Commonwealth in the form of tax credits.


But hold on to your hat, because the bad design of the growth limit formula isn't the only thing that's wrong with Ch. 62F.

Another major inequity with how 62F works is the way in which it returns money to taxpayers whenever there's a statutory excess.

It doesn't simply issue refunds to all taxpayers based on all taxes paid. Rather, it delivers a refund to income-tax payers only. In Massachusetts, our lowest-income residents pay nothing in state income tax. And so, under 62F, these residents will get no refund. However, this is particularly outrageous because these lower-income folks do contribute a significant portion of their income to state revenues in the form of gas taxes and sales taxes, etc. But 62F offers no credit for those payments (which have also been driven up recently due to global inflation, corporate greed, and the ongoing energy crisis).

As a result, 62F is terribly inequitable, and it represents an unconscionable cash windfall for the state's top income-earners, while doing virtually nothing for those who are most impacted by the ongoing economic crisis.

53% of residents with incomes of $25,000 or less will get no refund whatsoever, and income-tax payers in the lowest quintile will see refunds of $9 on average.

Meanwhile, someone with a $1 million income last year is about to get a check worth more than $6,500. And on average, those who earn more than $1 million per year will be getting refund checks worth $28,000 this month.

But that's not all. There were also some recent changes in federal and state tax laws that were never contemplated by the drafters of Ch. 62F, and these changes results in yet another outrageous inequity in the way 62F works in the present moment.


Back in 2017, when Trump Republicans passed the federal Tax Cuts and Jobs Act, they gave away so much money to the very wealthy and big corporations that they had to find some way to try to make the bill look a little less fiscally irresponsible. And so, they introduced a new $10,000 limit on the State and Local Tax (SALT) Deduction.

In turn, the state legislature created an accommodation for the owners of passthrough business entities (PTEs) who were complaining about being impacted by this change to the federal tax code. Under a new state law, owners of PTEs are essentially allowed to use their business to pay their individual state personal income taxes, and an income tax credit is then issued to the business owner for 90 percent of the total PTE tax paid at the business level.

However, business owners who took advantage of this new state tax law accommodation and are now eligible for a PTE credit do not have to claim the credit this year. This timing misalignment has resulted in about $1.4 billion in guaranteed PTE credits being counted in this year’s 62F overage calculation despite the fact that this money is already due back to PTE excise payers in future years.

According to MassBudget, this means the current Ch. 62F "excess" is essentially overstated by some $1.4 billion

It's worth reiterating this point: $1.4 billion of the $2.94 billion that is now being returned to income-tax payers will actually be claimed as tax credits against our state's future tax revenues. Therefore, a much more logical way of doing the 62F accounting would have been to subtract that $1.4 billion from the $2.94 billion before issuing any refunds.

Moreover, it should be noted the recent tax law accommodation that resulted in this discrepancy will systematically benefit wealthier individuals. For many wealthy folks who own passthrough business entities, this means Ch. 62F basically amounts to "double-dipping." A tax law change designed to help out wealthier folks is now triggering a tax cap law that is disproportionately benefiting wealthier folks.  


As soon as it became clear back in July that Ch. 62F was likely going to be triggered this year, I started lobbying House Leadership to consider legislation that would address all of these concerns before the Auditor had a chance to certify the statutory excess and before the Governor sent out any refund checks.

In August, I sent a memo to Speaker Mariano and other members of House Leadership, outlining all of the problems with 62F and suggesting some practical ways to address the situation and craft better economic policy.

Then in September, I went public with my advocacy, and as a result, I was featured in Commonwealth Magazine for "fighting a lonely battle to benefit low-income people." I also pushed for the House Progressive Caucus to schedule a meeting to discuss this matter, and I did numerous television, radio, and print interviews to educate the public.

Meanwhile, Governor Baker launched an aggressive public relations campaign, touting his plans to issue advance tax refund checks to income tax payers in November. The centerpiece of his campaign was an online refund calculator that allowed anyone to enter their basic tax information and determine how much money they could expect to get back this fall. Practically speaking, this refund estimator made it virtually impossible for most elected officials to consider scrapping the 62F law since doing so would effectively be seen as taking money out of people's pockets. 

Yet another problematic aspect to all of this is the fact that the text of Ch. 62F and the longstanding regulations pertaining to it explicitly call for "tax credits" to be made available at tax filing season next year. However, Gov. Baker very quietly moved to repeal those regulations back in the spring, and he ignored the letter of the law while announcing his own plan to issue the 62F tax credits in the form of advance tax refund checks this month. Obviously, this serves his own political interests, and this also raises real questions of state Constitutional Law that go beyond the scope of this email. (I've referred to the 62F tax credits as "tax refunds" or "refund checks" in some of the above text for the sake of simplicity, even though those terms are not technically or legally accurate).

I mention this legal ambiguity because Gov. Baker's desire to rush these checks out the door offered us in the legislature some degree of leverage to reshape the 62F distribution into something that better resembles good economic policy. And that's what led me to introduce a proposal to improve the distribution formula, HD.5394, "An Act Putting More Money In More People's Pockets."

My proposal would cap the Ch. 62F tax credits at $6,500 per taxpayer, and it would evenly redistribute the resulting excess to all other eligible taxpayers. This means that eligible taxpayers earning less than $1 million per year would get an extra $200 or so in their refund checks this month, and this extra $200 would be above and beyond what was already due under the current law.

I proposed $6,500 as the maximum refund because that is the expected credit due to a taxpayer with $1 million in income in Tax Year 2021. By limiting refunds for those with incomes greater than $1 million, we would be crafting better economic policy while at the same time honoring the fact that a $2.9 billion statutory excess has already been certified by the State Auditor.

In addition, my proposal would resolve the legal ambiguity surrounding Gov. Baker's unprecedented plan to issue tax credits in the form of advance tax refund checks. You can read my October 12th letter to all 200 state legislators explaining my bill here on my State House blog.

I'm proud to say my proposal to address the Ch. 62F situation was recently endorsed by the Boston Globe Editorial Board. In the words of the Globe Editorial Board:

Chapter 62F "would be a major fiscal policy failure on the part of the Legislature. Since when is it a good idea to send billions of dollars primarily to wealthy residents when both a recession and budget shortfalls are in the forecast? The good news is that it doesn’t have to be this way. State Representative Mike Connolly introduced legislation that would cap the tax credits at $6,500 for the wealthiest households, allowing the state to more fairly redistribute the $3 billion among the rest of Massachusetts’ taxpayers...

The Baker administration ought to stop these checks from going out and allow the Legislature to consider Connolly’s bill. After all, if Baker had not created the unprecedented refund check plan, then residents would have only seen the credits on their 2022 tax forms next year — as they did the last time the law was triggered. There’s no reason to rush the process now."

Finally, I would also be remiss if I didn't note that several 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 wholeheartedly agree with each of these sentiments, I also recognize the Auditor did certify the $2.9 billion excess and the Governor created a broad expectation for refund checks. In this context, I offered my proposal to reshape the 62F distribution into something that better resembles good economic policy and does significantly more for a lot more residents, while trying to work within the broad expectations the Governor and others created, however irresponsibly.

Despite all my efforts on this matter and the time I've dedicated to learning about this obscure law and communicating its implications to my colleagues and the general public, I am sorry to say legislative leaders ultimately decided against reworking the 62F formula or supporting any other efforts to intervene in this situation, and of course, the Governor didn't heed our calls, either.

On November 1st, the Governor announced the 62F refunds are now going out to income tax payers on a rolling basis over the course of the next six weeks. If you paid income taxes for Tax Year 2021, you can expect to see your 14% refund either as a check that will be mailed to you or as a direct deposit. If you have any questions about the refund process, please don't hesitate to reach out and my staff and I will do our best to assist you.


You may recall that the legislature was working on a major economic development bill back in the summer — versions of the bill actually passed both branches in July — but legislative leaders put the breaks on negotiating the final version of the bill once it became clear that Ch. 62F was likely to be triggered. No one (save the Governor) had been considering the possibility that $2.94 billion would be returned to income tax payers this fall, and so that fact created a great deal of uncertainty around the potential size of the final economic development bill.

Indeed, the stalled-out economic development bill was yet another negative consequence of Chapter 62F, and what has motivated and informed me in dealing with all of these issues are the economic hardships that so many of my 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 as always, my focus has been on crafting good economic policy that serves the needs of the working class, the poor, and middle-income residents, families, and seniors.

Fortunately, legislative leaders finally responded to our calls to reconcile a final version of the economic development bill. I'm proud to say I participated in an informal session of the House of Representatives on Thursday morning last week, where we passed a $3.7 billion version of this bill.

This bill, H.5374, "An Act Relating to Economic Growth and Relief for the Commonwealth," contains additional funding for MBTA safety, affordable housing programs, reproductive healthcare services (including abortion clinics), fuel assistance programs, fiscally-strained community hospitals and nursing homes, human services programs, and more.

In addition, the bill includes hundreds of thousands of dollars in funding for several important nonprofits in our community, such as the Green Street Shelter in Central Square, East Somerville Main Streets, the Community Art Center in the Port Neighborhood, and Food For Free, Inc., which serves our entire community and is now headquartered in the Inner Belt section of Somerville, which is also part of the 26th Middlesex District. I am grateful to Speaker Mariano, House W&M Chair Michlewitz, and to all of my House colleagues for supporting my amendments to fund these items in the economic development bill. This bill is now on Governor Baker's desk awaiting his approval.

In closing, I am acutely aware of the fact that many of my constituents and millions of Massachusetts residents are now facing a worsening economic crisis. So even as we pass the economic development bill, I am continuing to advocate for programs that do more to help with the costs of housing, childcare, health care, electricity, fuel, food, et al.

Of course, today's economic situation also speaks to why the Chapter 62F windfall for millionaires is such bad policy to begin with. There is a very real chance the economy could worsen in the months ahead, and if that happens, we could be facing some unthinkable budget cuts here in Massachusetts. If nothing else, I think documenting all of the inequities with Chapter 62F will prove to be helpful if we find ourselves facing a budget shortfall since it will remind us who has been benefiting and who has been exploited by our existing laws and policies.

If you've made it this far into my email, thank you so much — you must care about good economic policy as much as I do!

As always, please do not hesitate to reach out with any questions or concerns about these items or any other matter.

Yours in service,

Rep. Mike Connolly