Standing up for equity and tax fairness in Massachusetts

APRIL 20, 2023

Dear Cambridge and Somerville Constituents:

Last week, the Massachusetts House of Representatives passed a tax cut package that combined benefits for families and seniors with tax breaks for big corporations and the very wealthy — at an estimated cost of $1.1 billion per year once fully implemented.

While there were several items in the bill that I support — such as a new child and dependent tax credit and increases to the senior circuit breaker and the earned income tax credit — there were two items in particular that I found difficult to justify — a 58% cut to the tax rate on short-term capital gains income, and a change in tax apportionment factors for multi-state corporations.

Ultimately, I decided to vote No on the House tax reform bill, and during last week's debate I stood up to share my thinking in a 13-minute dissent.

The bill (H.3770) was initially proposed by Governor Healey and was further modified by the House Ways and Means Committee. It is titled: An Act to Improve the Commonwealth's Competitiveness, Affordability, and Equity.

I agree we should prioritize these goals — but after attending the hearing on this bill with the Governor before the Joint Committee on Revenue last month, I've become convinced this legislation is more of a hodgepodge of tax cuts rather than any sort of strategic effort to meaningfully improve our competitiveness, affordability, or equity.

For example, the bill offers a benefit that lets renters take up to $50 per year off of their income tax bill. That's nice, and I am happy for renters such as myself who will get this modest benefit. But with median rents for a one bedroom apartment now in the ballpark of $3,000 per month in our community, an extra $50 per year is hardly an "improvement" for anyone's affordability.

Meanwhile, the bill also proposes cutting the tax rate on short-term capital gains from 12% to 5%. According to MassBudget, 77% of short-term capital gains income goes to the wealthiest 1% of households in Massachusetts. In this moment of unprecedented wealth and income inequality, with an ongoing affordable housing emergency and ongoing disaster at the MBTA, I could not support a 58% tax break on this kind of short-term investment income.

Right now, there's a lot of hype from local business columnists about rich people threatening to leave Massachusetts — but according to MassBudget, "Rich people are not leaving the Commonwealth." Nevertheless, in the halls of power on Beacon Hill, there are conversations about accountants who are sharing anecdotes of their high-value clients being mad about the Fair Share Amendment and talking about maybe moving to Florida unless we deliver a tax cut pronto.

To be sure, I believe the people of Cambridge and Somerville take the goal of competitiveness very seriously, but I also think we understand that real competitiveness won't come from trickle-down economics or tax cuts alone. We understand that public investment in state infrastructure and universal programs is the key to achieving our goals for affordability, equity, and competitiveness.

In the text that follows, I will first provide a summary of the key elements of the House tax reform bill, followed by a copy of my prepared remarks to the Speaker and the Members last week. The bill passed the House on a vote of 150-3, with Somerville Rep. Erika Uyterhoeven and Acton Rep. Danillo Sena joining me in voting No. The bill now moves to the state Senate for further consideration. Several Senators have already vowed to push back on some of the elements of the bill that are regressive, so I am hopeful that my comments will help spark a reassessment of certain elements of this bill. 

Summary of the House’s $1.1 billion/year tax reform package

Child and Dependent Tax Credit: This will combine the Child Care Expenses Credit with the Dependent Member of Household Credit to create one refundable $600 credit per dependent, while eliminating the current cap on dependents. This proposal would be phased in over three years, and would be fully implemented in FY27. Taxpayers could claim $310 per dependent in FY24, $455 per dependent in FY25, $600 per dependent in FY26, and $614 per dependent in FY27. The proposal would cost $165 million in the first year of implementation and would cost $487 million when fully implemented in year three. It is expected to impact over 700,000 Massachusetts families. I support this provision.

Estate Tax Reform: Massachusetts is one of 12 states that impose an Estate Tax and we have the lowest estate tax exemption threshold in the country, along with Oregon. The House bill proposes increasing the estate tax threshold from $1 million to $2 million, and it eliminates the “cliff” effect, taxing the value of the estate that exceeds $2 million, and not the entire estate as the law currently requires. This is expected to cost $231 million per year. I support this provision.

More background on the Estate Tax: Governor Healey's proposal would have increased the estate tax threshold to $3 million, and last month I testified to the Joint Committee on Revenue in support of setting the threshold at $2 million. I am pleased the House has agreed with my position, which was also supported by the Raise Up Coalition. On the one hand, I think it's fair to double the estate tax threshold given how long the threshold has gone without an update, and given that a typical working class family that managed to purchase a home a generation or two ago is now likely bumping up against this tax. I also think it makes sense to "fix the cliff" that created some absurdities in how this tax was being implemented. At the same time, we should recognize that in an area where Black families have a median net worth of $8, no one should mind having their heirs pay a tax on the portions of their estate that are in excess of $2 million. So I think we've landed in a reasonable place on this.

Senior Circuit Breaker Tax Credit: The bill would increase the maximum credit from $750 to $1,500. Because the statute already includes a cost of living adjustment, the practical impact of this proposal would be to double the credit from $1,200 to $2,400. This change is expected to impact over 100,000 taxpayers who own or rent residential property in Massachusetts as their principal residence. The proposal would cost $60 million per year. I support this provision.

Short-term Capital Gains Tax: The bill would cut the rate of taxation on short-term capital gains from 12% to 5%, phased in over 2-years (8% in 2023 and 5% in 2024). Short-term means the asset was held for less than 1 year, and MassBudget reports that 77% of these benefits would go to the wealthiest 1% of households. This would cost $67 million in year one, and ultimately cost $130 million annually. I oppose this change. I could be willing to support a cut to the 8% level, but with 77% of this income going to the top 1% of households, I believe we should continue to tax short-term capital gains at a higher rate than we tax long-term capital gains or wage and salary income. My speech to the House last week was largely focused on this aspect of the package

Rental Deduction Cap: The bill would increase the rental deduction cap from $3,000 to $4,000. This is expected to impact about 881,000 Massachusetts taxpayers and cost $40 million per year. Increasing the cap from $3,000 to $4,000 sounds significant, however, with a 5% tax rate on wage and salary income, the practical impact of this change is at most a $50 benefit for the typical renter. I support this change, and at the same time, I am pointing out how it isn't much of a solution to our ongoing housing emergency.

As an alternative, I have been making the point that a world-class right to counsel program for tenants facing eviction would cost us about $26 million/year. But instead, Beacon Hill leaders are pushing this tax cut package that will give up to $50 back to all renters at a cost of $40 million/year. As a renter, I would be better off with a guaranteed right to legal representation in eviction matters than I would be with an extra $50 in my pocket each year. And as a Commonwealth, each $1 we spend on right to counsel will directly save us $2.40 in costs for other state services. After several years of roadblocks for a right to counsel program on Beacon Hill, this year, housing advocates have lowered their expectations and are now asking for a $7 million "access to counsel" program in the pending state budget.

Single Sales Factor Apportionment: This would benefit multi-state corporations by revamping the current three-factor apportionment (based on property, payroll, and receipts) into an apportionment based solely on receipts. This proposed change is projected to cost $115 million in year one, and ultimately cost $79 million annually, starting in year two of its implementation. I oppose this change. Under the so-called Tax Cuts and Jobs Act signed into law by Donald Trump in 2017, the top corporate tax rate on the federal level was cut from 35% to 21%. After receiving that generous windfall, our state's largest corporations proceeded to go to court to get the Fair Share Amendment thrown off the ballot in 2018 on a technicality, ultimately depriving our Commonwealth of over $10 billion in potential revenue between 2019 and 2022. In this context, I believe big corporations can do more to pay their fair share.

Earned Income Tax Credit (“EITC”): This proposal would increase the Earned Income Tax Credit (EITC) from 30 percent to 40 percent of the federal credit. This is expected to impact about 396,000 taxpayers with incomes under $57,000, and would cost $91 million. This is the most progressive element of the package. I support this provision.

Chapter 62F (“Tax Cap”) Reform: Last fall, I led the effort on Beacon Hill to reform Chapter 62F, a bogus Regan-era "tax cap" law that is driven by arbitrary calculations and an inequitable distribution formula. The Boston Globe Editorial Board endorsed my proposal to make the distribution formula more equitable — but legislative leaders wouldn't go along with it, so approximately 1/3rd of the $3 billion in tax credit/refunds that were delivered last year went to those with million-dollar incomes — a highly regressive outcome. This time around, House leaders have agreed to more closely follow my approach. Under the current proposal, an equal amount would be returned per income tax payer. I support this change as a meaningful improvement to the law, and at the same time, I would point out that even with this change, Chapter 62F remains inequitable because the formula considers all forms of revenue on the one hand, but it only delivers credits to income tax payers on the other hand. That means someone with a very low income, who nevertheless contributes a significant portion of their income to things such as sales taxes, could help trigger the law but would still not see their share of the credit. That's still inequitable, even if the law is now being made more equitable with these proposed changes.

Stabilization (“Rainy Day”) Fund Cap: The bill also proposes adjusting the Stabilization Fund cap, which currently requires that if the amount remaining in the fund at the end of a fiscal year exceeds 15 percent of the budgeted revenues and other financial resources pertaining to budgeted funds, the excess funds must be transferred to the Tax Reduction Fund, which would then be transferred to taxpayers through one time increases in the personal exemption allowable against income tax liability. The bill proposes adjusting the cap to 25.5 percent, which would allow the Commonwealth’s savings account to retain more funding. I support this change. It essentially pushes off a trigger to return surplus revenues so that we can build a bigger rainy day fund to deal with a deep recession or other emergency situations.

My Prepared Remarks to the House of Representatives

Thank you, Mr. Speaker, and through you to the Members.

Let me begin by acknowledging there is so much in the bill before us today that we can appreciate and I know my constituents will appreciate. It’s credit to you Mr. Speaker, it's a credit to the gentleman from the North End, it's a credit to the gentlelady from Gloucester, it's a credit to the gentleman from Braintree, and to all of our colleagues and all of the staff who worked to bring this tax reform package before us today. This is a package with something to offer to just about everyone.

Several of these items will provide economic benefit to working families, to seniors, and to people experiencing poverty — from the creation of the child and dependent tax credit, to expansions of the earned income tax credit, the senior circuit breaker, the rental deduction, and others — there’s a lot in this bill that I enthusiastically support and there's a lot that we can appreciate.

And yet, there are real concerns about the parts of the bill that overwhelmingly benefit big corporations and the very wealthy — such as the big cut to the short-term capital gains tax rate and the change to the apportionment factors for big corporations — these items disproportionately benefit the wealthy in our Commonwealth. It has been estimated that 77% of the benefits of the short-term capital gains change will go to the wealthiest 1% of households. Once fully implemented, this package will not be equitable.

We heard a moment ago that we're an outlier on short-term capital gains — that we tax capital gains at a different rate than we tax wage and salary income. There's a reason for that. Wage and salary income is the sweat of your brow. That is the working class. What we are saying with the legislation before us today, in particular this short-term capital gains cut, is that we value the income of the billionaire who is playing on the stock market in the same way that we value wage and salary labor. Personally, I don't think that's equitable.

We are living in a time of unprecedented wealth and income inequality. Inequality is bad. As Elizabeth Warren, Robert Reich, and Thomas Piketty have all noted, inequality doesn’t just harm poor people — in the long-run, inequality isn't good for rich people, either — and, it’s especially not good for our economy as a whole.

So if we care about our economic outlook (which I know we all do), if we care about our competitiveness, then we have to care about ever-growing wealth and income inequality here in Massachusetts and around the nation — and we have to be intentional about reducing, not perpetuating it.

We must also recognize the intersection of race and this unprecedented wealth and income inequality. There has always been a wage gap along intersecting racial and gender lines in this country. And over the past 25 years, the wealth gap between white and Black families has tripled. Boston has been recognized as the most unequal big city in the nation; Massachusetts is as unequal now as it was at any time before or during the Great Depression; in 2015 the Boston Fed found the average net worth of US-born Black families in the Greater Boston area is just $8. Experts believe this wealth gap likely worsened in recent years. And today, 1 in 4 Latinos live in poverty in Massachusetts.

Those are the facts, and let’s be clear — this inequality is not natural. It is in fact the product of our policy choices.

What policies have resulted in this unprecedented wealth and income inequality — what many commentators have called a Second Gilded Age?

Tax cuts for the rich and for large corporations have played a central role in driving this inequality in Massachusetts. Both directly, by funneling money upward to the super wealthy and to big corporations. And also indirectly, by depriving us of the revenue we need to make investments in things like affordable housing, affordable childcare, a functioning public transportation system, and state and local infrastructure.

In turn, chronic underinvestment not only exacerbates inequality, it also undermines our competitiveness.

There was a time when they called it “Taxachusetts.” That was a long time ago. The story of taxes in Massachusetts throughout my entire adult life has mostly been a story of tax cuts. Tax cuts for the rich. Tax cuts big corporations. Tax cuts for everyone. That’s why so few of us had ever heard about Ch. 62F last year. There was no reason. The goal of tax cuts had been fully accomplished.

These tax cuts have fueled inequality and undermined our ability to make necessary public investments — and in turn, this undermines our affordability and our competitiveness.

30+ years ago, the MRVP program, our flagship rental voucher program, provided over 20,000 housing vouchers to those in need. Today, we are able to do less than 10,000. If you put that trend line on a map, you'll see the relative investment go down, and you'll see family homelessness go up — and it has doubled — that is the legacy of tax cuts in Massachusetts.

30+ years ago, when Mike Dukakis was Governor, the MBTA was safe, reliable, and very popular. It's hard to believe! Then we had a string of Republican governors, this House went along with a series of tax cuts and loaded the T up with debt from the Big Dig, and that has resulted in the public transportation disaster we all face.

Finally, about a decade ago — we began to take action to reverse this trend. We came up with the idea for the Millionaires' Tax. Throughout my time in the legislature, the main goal for tax policy for so many of us was to pass the Fair Share Amendment. After four votes by this legislature, after two successive statewide campaign cycles, the people finally passed the Fair Share Amendment last fall. In the process, they told us they want the rich to pay their fair share, and they want us to make bigger public investments.

However, the tax package before us now threatens to erase most of the new revenue from the Fair Share Amendment. I understand and trust that in this year’s budget we are faithfully implementing the Fair Share Amendment in an additive fashion. But $1.1 billion is $1.1 billion — and in addition to education and transportation, we desperately need bigger investment in housing, childcare, water infrastructure, and so much more.

Won’t tax cuts make us more “competitive”?

Tax policy is a real factor with regard to our competitiveness; it's a real factor with regard to our affordability; but it’s just one of many factors.

Our competitiveness lies in our universities and the academic and scientific communities that draw the technology sector to our Commonwealth. Our competitiveness lies in our world class teaching hospitals, hospitality and tourism, creative and arts economies, in fishing, farming and so many other industries.

Our competitiveness also comes from our historic policy choices — from being an all-time leader on education and health care, to being on the cutting edge of green technology and wind power, to being a consistent leader on civil rights and civil liberties — people want to be here because of our values, our history of leadership, our beautiful and diverse landscapes, and our deep connections to each other and to this incredible place we call home.

And perhaps most of all, today, our competitiveness is driven by our infrastructure; the availability of affordable housing and affordable childcare — and for my Cambridge and Somerville constituents in particular, competitiveness is all about the MBTA.

Let me point out that it has been 295 days without “normal” weekday service on our subway system. We do not have the people, the equipment, or the processes in place to safely run trains on a regular basis. That's not hyperbole. That's actually the fact; we can't do it right now. And what's worse, we do not even have any roadmap or any timeline for when we can return to regular service, and perhaps most relevant to this conversation, we know that in the next fiscal year, the MBTA is facing an operating budget deficit in excess of half a billion dollars.

And this is why tax cuts for the rich and big corporations are a problem — they don’t just exacerbate inequality directly, they do so by depriving us of the revenue we need to make investments that would support our long-term competitiveness.

As I mentioned at the top, this bill has something for everyone. But the benefits skew to the very wealthy, and that's inequitable

We ought to consider a basic alternatives analysis. We're being told when fully implemented this is a $1.1 billion bill — how much will this cost over ten years? — $15 billion, maybe, when you consider inflation and rounding errors? Maybe it's a $20 billion commitment over ten years? We haven't seen those estimates.

But we ought to ask ourselves: If we had $20 billion to invest in the next ten years and we committed to universal affordable housing and universal affordable childcare — what would that do for our competitiveness — and would that be a better trade?

Final point I want to make: Why is the analysis only in one direction? To be clear, I'm willing to compromise and consider where we may be an outlier, and we've heard how our estate tax and other taxes, capital gains, are outliers. What about something like a tiered corporate minimum? That's an outlier in the other direction. It hasn't been updated in over 30 years. Here in Massachusetts regardless of size a corporation can use clever accounting tactics and get their tax bills down to $456. If we included a provision like the tiered corporate minimum, we could help offset some of the tradeoffs we're making with the legislation before us.

In conclusion Mr Speaker, I would respectfully ask that we withdraw this amendment. I will be voting No on this bill, and I would ask that these comments be considered as we move forward through the process on this bill. Thank you so much.

Thanks for reading! If you have any questions or concerns about this or any other matter, please do not hesitate to reach out.

Yours in service,