Estate Tax News – Lawmakers unveil final tax relief legislation

Here is our compilation of the media coverage following lawmakers’ release of their tax relief plan.

From Boston Globe:

Hailing it as a historic win for taxpayers, Massachusetts lawmakers will begin voting Wednesday on a $1 billion tax package that would boost tax breaks for families, seniors, and others while slashing state taxes on profits from short-term investments, a change that had divided Democrats.

The package would save hundreds of thousands of taxpayers a collective $561 million this fiscal year, according to legislative officials, with expectations that the total savings would eventually climb to just over $1.02 billion once it goes into full effect in fiscal year 2027, which begins July 1, 2026.

Its emergence follows nearly two years of debate and months of closed-door negotiations about how best to ease the burden on taxpayers squeezed by the state’s rising cost of living and bring the tax code more into line with other states.

The House is expected to vote on the measure Wednesday, and the Senate on Thursday, and it is expected to pass and move on to Governor Maura Healey, who has championed the need for tax relief.

“It is the largest bipartisan legislative tax relief proposal in over a generation, and I think in probably everyone’s collective memory,” Senate President Karen E. Spilka said Tuesday. “This is real money that our families need the most.”

The legislation is wide-ranging, according to a legislative summary. It would reshape the estate tax, currently considered one of the nation’s strictest, by hiking the threshold at which the tax kicks in from $1 million to $2 million. Moreover, the legislation would offer a tax credit that seeks to offset the so-called cliff effect, where an entire estate is taxed once it hits the threshold, not just the amount over it.

Just 12 states tax estates after someone’s death, and currently only Oregon and Massachusetts begin taxing them at $1 million. The change contained in the bill would cost the state $210 million per year, and largely benefit the wealthier estates.

The bill also would double the tax credit for seniors who rent or own in Massachusetts from $1,200 to $2,400, raise the deduction for renters from $3,000 to $4,000, and increase the earned income tax credit — designed to help low-income families — from 30 percent to 40 percent of the federal credit.

It would also create what legislative officials said is the most generous universal child and dependent tax credit in the country. The bill would combine two existing credits — for child care and dependent care — into one, and would allow taxpayers to claim $310 per dependent in the first year of implementation. The bill also lifts the cap on how many dependents a taxpayer could claim. The size of the new credit would then jump to $440 per dependent in the second year, saving hundreds of thousands of families an estimated $300 million.

That figure represents a compromise: Healey and the House had pushed for an even more generous credit of $600 per dependent, while the Senate had passed language capping the increase at $310.

A Senate plan to increase the cap on credits awarded to developers through the Housing Development Incentive Program, or HDIP, also survived negotiations. It would rise to to $57 million in the first year, from $10 million now, and then return to a new permanent cap of $30 million.

In a compromise, the bill would also cut the tax rate on short-term capital gains — profits on investments held up to a year — a measure that Healey and the House had embraced but senators disliked, arguing the state should be focused on “families, not on corporations.”

The chambers ultimately agreed to slash the tax rate from 12 percent to 8½ percent, a more modest cut than the House proposal for 5 percent.

The compromise language was “about making sure there was balance in the tax package” in addition to addressing the needs of more vulnerable residents, said Senator Susan Moran, a Falmouth Democrat and the chamber’s chair of the revenue committee.

“You really want to be sure that people are able to really live in and afford their communities first,” she said. “That being said, a rising tide lifts all boats.”

The package would also give the business community another item on its wish list: a switch in how state corporate taxes are calculated to what is known as the “single sales factor.” With some exceptions for certain industries, Massachusetts corporate tax is currently calculated using three factors: a company’s local employment, property holdings, and in-state sales. The bill would simplify it to rely solely on the amount of a company’s sales within the state.

Doug Howgate, president of the business-backed Massachusetts Taxpayers Foundation, said he was happy the negotiators included just about every element in both the House and Senate proposals, even if some were scaled back.

“They really included some version of everything,” he said.

The bill, however, received a mixed response from other business leaders, some of whom fretted the changes may not go far enough.

Elizabeth Mahoney, vice president of the Massachusetts High Technology Council, said the new single sales apportionment “brings us in line with the way most other states do this.” But changes to the estate and short-term capital gains taxes are too modest to change the state’s outlier status, she said. Massachusetts, for example, will remain one of just three states that tax short-term gains more than other income.

“We’re concerned that some of the other competitiveness items are more on the modest side,” Mahoney said.

Jim Rooney, chief executive of the Greater Boston Chamber of Commerce, said the agreement marks a “pivotal day” for the state, even if the business community didn’t get everything it wanted.

“Public policy work in this arena of tax reform, it’s a long game,” he said.

The details of the bill emerged days after legislative leaders first said they reached an agreement on the wide-ranging package, which they announced but offered no details. In reality, discussions continued through the weekend, as lawmakers ironed out the language.

The Legislature hasn’t passed a significant tax relief bill in decades, and some of the most notable measures enacted in the past — such as slicing the state’s income tax to 5 percent — were spurred by ballot initiatives, not legislative action. The debate on this round of tax relief first began 20 months ago.

“I know a lot of people said, ‘When is it going to happen? When is it going to happen?’ ” Spilka said of tax relief. “It was really important that we get it right and help as many residents in as many different ways as we possibly could.”

Healey said she was “very pleased” with the House-Senate compromise.

“I campaigned on tax relief,” Healey said in an interview. “I promised that at the outset of my administration. Here we are eight, nine months later, and we have a comprehensive tax package that’s going to provide needed relief to businesses and residents across Massachusetts.”

The package includes an array of other policy changes. It seeks to change what’s known as Chapter 62F, a nearly 40-year-old law that requires the state to return excess revenue collections to taxpayers when revenues exceed a predetermined cap.

In 2022, the once-obscure law triggered the nearly $3 billion refund to taxpayers, which was returned on a “proportional basis,” meaning the more someone owed in income taxes, the higher the refund. The new bill adjusts the credit so that all taxpayers receive an equal amount — which critics have already questioned as potentially unconstitutional.

The bill also includes another change that would require all married couples who file joint federal returns to also file jointly at the state level, rather than individually, a measure some business leaders opposed. The goal, proponents say, is to prevent wealthy couples from avoiding the so-called millionaires tax, a new surtax on annual incomes over $1 million, by filing separately.

From WGBH:

More than 565,000 families in Massachusetts will benefit next year from an expanded tax credit of $440 for children, disabled adults and seniors under a compromise tax break package that top Democratic lawmakers announced Tuesday.

The state’s House of Representatives is expected to vote Wednesday on the bill, with the Senate following suit and sending the bill to Gov. Maura Healey’s desk Thursday.

The deal, the product of about three months of closed-door talks between the two chambers, includes major changes to the estate tax, a cut to the tax rate on short-term capital gains, and breaks for renters and seniors. Lawmakers expect it to cost the state $561 million this year, and grow to $1 billion in the 2027 fiscal year, when it is fully phased in.

“This tax relief bill will help alleviate many, many financial burdens that our families, our seniors, our renters face and put real dollars in their pockets,” Senate President Karen Spilka said. “For example, a low-income household with two kids will see their tax refund check increase by more than $1,000 because of this bill. This is real money that our families need the most.”

A $600 child and family tax credit was the centerpiece of a tax relief bill Gov. Maura Healey filed in January. While lawmakers opted for a smaller per-dependent credit, Senate Ways and Means Committee Chair Michael Rodrigues said their version will still be “the largest universal child dependent tax credit in the country.”

Under the compromise unveiled Tuesday, the credit will rise to $310 this year from its current $180. Starting in 2024, families that include children, seniors or disabled adults will be able to receive a credit of $440. The bill also removes an existing cap on the credit, allowing it to be claimed for all children or dependents in a family.

The bill will also:

  • Raise the threshold for the estate tax from $1 million to $2 million.
  • Boost the earned income tax credit to 40% of the federal credit, a change lawmakers said would benefit nearly 400,000 taxpayers with income under $60,000.
  • Double, to a maximum $2,400, a tax credit — known as the “senior circuit breaker credit” — that helps people age 65 and older with their property taxes or rent.
  • Increase the cap on the rental deductions from $3,000 to $4,000.
  • Steer more money to programs aimed at building new housing. The cap for the Housing Development Incentive Program, focused on market-rate development in Gateway Cities, would grow from $10 million to $57 million this year, and then settle out at $30 million annually. The annual authorization for the Low Income Housing Tax Credit would grow from $40 million to $60 million. 
  • Triple the maximum credit for homeowners undergoing septic tank replacement or repair, to $18,000.
  • Cut the tax rate for short-term capital gains — profits on assets held for a year or less — from 12% to 8.5%. 

Lawmakers also agreed to a tax-policy measure related to the so-called millionaire’s tax voters passed last year. A provision in the bill will require all Massachusetts married couples who file joint federal tax returns to also file joint state returns, so that couples with a combined income of over $1 million — but individual incomes below that threshold — would not be able to avoid the extra 4% surtax.

The Raise Up Massachusetts Coalition, which led the campaign to pass the millionaire’s tax, said that move will close a loophole and “prevent Massachusetts from losing as much as $600 million in Fair Share revenue each year.” The Massachusetts Fiscal Alliance, meanwhile, cast the change as a “marriage penalty” that could “incentivize more high-income earners to relocate or domicile elsewhere

Beacon Hill officials have been working towards some form of tax relief since January 2022, when then-Gov. Charlie Baker announced a proposal he said was intended to “encourage our citizens to continue to call Massachusetts home and to help those struggling to make ends meet because of rising inflation.”

The House and Senate last year each passed tax break bills but never managed to come together on a final version, instead scuttling the roughly $1 billion package once it became clear that the state needed to return $3 billion to taxpayers under after runaway revenue collections exceeded a cap set under an obscure 1986 state law.

That law calls for refunds to be issued in proportion to how much someone paid in taxes — so people who earn more money and pay higher taxes would get more back than lower-income earners. This bill would change that, so if the law is triggered in the future, the refunds would be paid out equally to all taxpayers.

Healey, after talking up tax relief on the campaign trail, put forward her own plan this year, starting the cycle anew. The House and Senate rewrote Healey’s bill and each branch passed its own version this spring.

“This is a comprehensive package that delivers relief to families and businesses, including through our proposed Child and Family Tax Credit, and I look forward to reviewing the details and delivering for Massachusetts,” Healey said in a statement.

From Politico:

YOU GET A TAX BREAK AND YOU GET A TAX BREAK — In the end, almost all the major players in the tax-relief saga will get to walk away winners.

Gov. Maura Healey got lawmakers to meet her most of the way on some of her signature promises in the pared-down deal they filed Tuesday. That includes overhauling the child and dependent tax credit, raising the estate-tax threshold and cutting the short-term capital gains tax rate.

Top House Democrats got their Senate counterparts to agree to change how Massachusetts’ corporate taxes are calculated — another win for the business community — and to make future rebates under Chapter 62F equal for all taxpayers.

Senate leaders secured expansions to two programs aimed at boosting market-rate and low-income housing production, the Housing Development Incentive Program (which Healey also wanted) and the Low Income Housing Tax Credit.

Senate President Karen Spilka hailed the deal as the “largest bipartisan legislative tax relief proposal in over a generation.” House lawmakers will take up the $561 million package — which will eventually cost the commonwealth more than $1 billion a year — this afternoon. Senators will follow suit tomorrow. Let’s break it down:

WHAT HEALEY WANTED — A $600 child and dependent tax credit, a $3 million estate-tax threshold (up from $1 million) and a 5 percent short-term capital gains tax rate (down from 12 percent). She also wanted to raise the annual cap on HDIP to $50 million in the first year and $30 million thereafter.

WHAT SHE GOT — The child tax credit will rise to $310 in the first year and $440 afterward. The estate-tax threshold will rise to $2 million. The short-term capital gains rate will fall to 8.5 percent. HDIP will grow to $57 million in the first year and $30 million after.

Some of this was predictable. Lawmakers weren’t going to go for a $3 million estate-tax threshold after all-but agreeing to $2 million last year before talks fell apart when Chapter 62F was triggered. They proposed the same again this year.

Some of it was surprising. Resistance among senators and progressives to any form of a short-term capital gains tax cut was fierce.

And while they gave the governor plenty to tout, top Democrats still denied one of their own what would have been her biggest win: delivering the full $600 child and dependent tax credit she pitched early in her gubernatorial campaign. Lawmakers said they were being realistic about what the state can afford. And they insisted their version will be the “largest” universal child and dependent tax credit in the country.

Healey’s still pleased. “This is a comprehensive package that delivers relief to families and businesses, including through our proposed child and family tax credit,” she said in a statement.

So, who lost here? Hundreds of thousands of renters, seniors and families who’ve had to wait 20 months for relief. Republicans and conservative groups that didn’t want changes to Chapter 62F. Housing advocates who were lobbying lawmakers to hold off pouring more money into HDIP until they tackled existing concerns with the program, including the unequal distribution of credits. Massachusetts Law Reform Institute housing attorney Mark Martinez, for instance, called additional funding for HDIP “offensive.”

But progressive lawmakers and activists who fought the more business-friendly measures saw their losses tempered by the deal’s compromises. And they notched a win in language that requires married couples to file their federal and state taxes the same way, which proponents believe will close a “loophole” wealthy couples could use to avoid paying the so-called millionaires tax.

This post is a part of Old Colony Law’s Estate Tax Updates.