#2023-14, June 16, 2023

Senate Passes $590 M Tax Relief Bill; Differs from House Bill

On Thursday, the Senate stamped its unanimous approval on a nearly $590 million package and also sealed the fact that the fate of tax relief in the Commonwealth will now rest with a legislative negotiating committee.

As previously reported, both branches have voted this session on increasing tax breaks for renters, seniors, and parents, lessening the taxpayer impact of the estate tax, and boosting the earned income tax credit that supports lower-income families. Depending on how quickly House and Senate leaders can iron out differences, a final proposal could be headed to Governor Maura Healey’s (D-Cambridge) desk as soon as this summer.

However, a tricky bargaining process looms for Democrats who must bridge significant differences, a challenge they did not rise to in 2022. The Senate plan is roughly half a billion dollars smaller than the House’s in the long run and differs markedly from both the House bill and one offered by Governor Healey.

In their bill, S. 2397, Senate Democrats rejected a Republican proposal to weave a short-term capital gains tax cut into their bill, which would have brought it into alignment with both Healey and the House’s push to reduce that rate from 12 percent to 5 percent. Democrats contended that the measure, which the House estimated would cost up to $130 million per year once fully implemented, would unnecessarily steer benefits toward day traders and others who sell assets owned for less than a year. In March, Governor Healey said that Massachusetts, Wisconsin, and South Carolina are the only states that tax short-term capital gains at a higher rate than long-term capital gains.

The Senate also rejected amendments that would have significantly expanded changes to the estate tax and indexed it to inflation as well as a House-approved proposal to tax many businesses based only on their sales within Massachusetts, rather than a combination of sales, payroll, and physical presence.

One addition they made that the House has not embraced is language taking aim at what critics say is a “loophole” in the new voter-approved surtax on household income above $1 million. The amendment filed by Lewis, one of the primary backers of the surtax, would require married couples who file a joint federal income tax return to file a joint state tax return. Senators voted 33-5 to insert the change into their tax bill, with Finegold and Senator Michael Moore of Millbury joining the chamber’s three Republicans in opposition.

The Senate’s tax relief bill takes aim at the housing affordability crisis in particular through a combination of credits that supporters say will incentivize production of new housing, thereby boosting supply and giving potential buyers more options.

The House and Senate bills each envision roughly the same amount of relief in the first year, but the House bill would escalate its changes over several years, eventually landing at about a $1.1 billion annual impact. The Senate bill, by contrast, would not change much from its roughly $590 million starting point.

Both branches factored the first year of costs into their fiscal year 2024 budget bills, which remain tied up in conference committee negotiations ahead of the fiscal year’s start on July 1.

The tax relief proposal appears bound for a similar conference committee, likely to be helmed by the same budget chiefs already hashing out the budget.

Massachusetts Jobless Rate Dips Below 3 Percent

On Friday morning, the Massachusetts unemployment rate dropped to 2.8 percent in May, nearly a full point below the national rate, as the labor market continues to hold up despite slower economic growth in recent months.

The jobless rated released was 0.3 percentage points below the revised April rate of 3.1 percent. The April jobless rate was originally reported last month at 3.3 percent.

The Executive Office of Labor and Workforce Development on Friday also cited Bureau of Labor Statistics estimates indicating that Massachusetts gained 5,700 jobs in May, on the heels of April’s revised gain of 5,900 jobs.

Massachusetts has gained 704,100 jobs since employment levels plummeted in April 2020 during the onset of the COVID-19 pandemic. In the past year, the state has gained 105,100 jobs, according to the bureau’s estimates.

The national jobless rate for May was 3.7 percent.