Estate tax update: Reaction to Governor’s testimony before the Joint Revenue Committee

On Tuesday, Governor Healey’s testified before the Joint Revenue Committee regarding her tax relief package (which includes proposed changes to the estate tax law). As part of it’s ongoing Estate Tax Updates, Old Colony Law compiled some of the reaction in the press.

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From MassLive:

[The Governor’s] push to overhaul the commonwealth’s estate and short-term capital gain taxes — and in effect, removes Massachusetts’ outlier tax code status — drew skepticism at the Joint Revenue Committee hearing Tuesday at the State House.

Progressive lawmakers amplified concerns previously raised by other advocacy groups and tax policy analysts that Healey’s proposals would disproportionately benefit the state’s wealthiest residents while culling away limited financial resources for other government programs and tax cuts to aid the most vulnerable Bay Staters.

Healey, for her part, remained adamant as she framed her tax cuts as a calculated maneuver to staunch an exodus of Massachusetts residents. Administration and Finance Secretary Matt Gorzkowicz said the package is affordable and incorporates “many of the elements” the Legislature already advanced last session.

“I’m really appreciative of equity being the core center of this project. I do think that for us to truly see equity as the core center, there’s some tweaks that I’d like to have happen,” Sen. Lydia Edwards said at the hearing, as she suggested tax policies are imbued with narratives. “One narrative we cannot forget is the racial disparities and wealth gap that exist right now.”

At a cost of $167 million to the commonwealth, Healey wants to raise the estate tax threshold from $1 million to $3 million, while introducing a nonrefundable credit of up to $182,000. She also wants to slash the short-term capital gains rate from 12% to 5%.

But Edwards implored the governor to gradually raise the estate tax threshold over five to 10 years, rather than imposing the full adjustment in fiscal 2024. She also pressed Healey to consider doubling or tripling other tax relief measures, including the rental deduction cap, senior circuit breaker and student loan repayment exemptions.

“I’ve heard the narrative a couple of times about us being an outlier on this. I’m OK with being an outlier on so many things because we lead…” Edwards said of Healey’s estate tax proposal. “The outlier narrative is, I know it hits for some people, but for me, I think I need another narrative, a stronger narrative around why $3 million right now.”

Healey told reporters her administration would consider Edwards’ comments, particularly those tied to racial disparities.

At the hearing, Healey said more interventions are needed than a tax relief package in order to tackle steep rental costs and the lack of homeownership among people of color. She also countered that with a significant outmigration of Massachusetts residents and businesses to places like North Carolina and New Hampshire, revamping the estate tax is critical to bolstering the state’s competitive edge.

State Rep. Erika Uyterhoeven suggested Healey’s plan cancels out the influx of new tax revenues generated from the so-called Fair Share Amendment or millionaires tax, which imposes a 4% surtax on all income exceeding $1 million. Uyterhoeven fretted over “tradeoffs” made by Healey, such as cutting funding for rental assistance programs.

Uyterhoeven noted the governor’s tax cuts provide $50 in annual rental relief and about $50 in monthly child and family care relief, though taxpayers with an estate worth $3 million or more would receive the $182,000 credit.

“That doesn’t sound equitable to me when I look at the different groups, and I represent all of them,” said Uyterhoeven, who’s filed a separate plan to raise the estate tax threshold from $1 million $2 million, while saving the state hundreds of millions of dollars in lost revenue compared to Healey’s plan. “These tax reliefs I don’t think go far enough, and I’m not sure that’s the right approach.”

[. . .]

A new survey from the Massachusetts Society of Certified Public Accountants found that 61% of about 5,500 high-income taxpayers are considering leaving the commonwealth due to tax policy, especially the new millionaires tax. But raising the estate tax threshold and decreasing the short-term capital gains tax rate could deter those relocations, according to the survey.

“Given the high stakes and impact this will have on tax revenue and other key investments like charitable giving, we hope the Legislature sees the need for a comprehensive tax package this year,” Zach Donah, vice president of advocacy at MassCPAs, said in a statement.”

WBUR‘s coverage:

Gov. Maura Healey personally pitched lawmakers on her $750 million tax reform plan during a State House hearing yesterday. And though her proposal includes breaks for everyone from parents to renters to low-income seniors, one particular provision emerged as the subject of pushback from fellow Democrats in the Legislature: the estate tax.

  • Some background: Massachusetts is one of 12 states with its own estate tax. The one-time tax applies to properties over $1 million that are passed down after their owner dies. (The graduated tax starts off small but goes up to 16% for estates in the eight figures.) The $1 million threshold is also tied for the lowest in the country.
  • Healey’s proposal would raise the level at which the estate tax kicks in to $3 million (more than the $2 million threshold state legislators agreed to last year). It also includes a $182,000 credit for affected residents to address the current tax‘s “cliff effect.”
  • The argument for it: Home values have surged 118% over the past two decades, and the Healey administration contends that the estate tax has “some catching up” to do in order to keep the state competitive. Healey argued that “we can’t be the outlier that we are,” noting that Massachusetts has seen more people leave than move here since 2020. “We’re concerned about higher-income households leaving because of the tax revenue they generate for the state,” she told lawmakers. “We’re also concerned about people who might think that this is going to affect them.”
  • On the other hand: Several Democratic lawmakers argued that the real reason people have moved away is the state’s expensive housing and child care costs — and suggested Healey’s tax plan should double down on those issues. State Sen. Lydia Edwards said that “if we’re going to center equity,” Healey’s proposed tax cuts for renters should be “doubled, if not tripled,” while the estate tax reforms should be pared back. “I’m OK with being an outlier on so many things, because we lead,” Edward said.
  • Reality check: House Speaker Ron Mariano has continued to voice concerns about the state’s finances. So it remains unclear what, if any, tax cut plan will make it through the State House this year.

CBS News:

[O]n proposals for cuts in the capital gains and estate taxes that would help upper income residents, there was intraparty pushback.

“I’m particularly intrigued by the fact that at least some national tax policy experts say there’s no connection between tax rates on capital gains and economic growth,” said a skeptical Sen. Becca Rausch (D-Needham).

Replied Healey: “Certainly we’re concerned about higher income households leaving because of the tax revenue they generate for the state.”

Sen. Lydia Edwards (D-East Boston) suggested Healey boost the breaks for lower-income residents but slow down on pushing for the upper-income cuts.

“I’ve heard the narrative a couple of times about us being an outlier on this,” she said. “I’m ok with being an outlier because we lead, on civil rights so on and so forth.”

“I just don’t believe that Massachusetts should be the only state in the country in this situation,” responded the governor. “I’m not looking to create more reasons for people to leave here even if it’s back to my home state of New Hampshire.”

Newburyport News:

Testifying before the Legislature’s Revenue Committee, Healey personally made the case to approve the legislation she filed along her $55.5 billion preliminary budget proposal, which calls for expanding tax credits for housing and child care, cutting business taxes and updating the “death” tax, among other changes.

Healey said the plan will help people struggling to make ends meet amid record-high inflation that has affected many households in the wake of the pandemic.

“It will give families some room to breathe during hard economic times; it will help address some systemic inequities that have been holding too many back for too long; and it will provide direct relief to those who need it most” she said.

A centerpiece of Healey’s tax relief plan would create a new $600-per-child tax credit she says would benefit more than 700,000 low-income families. The credits would cost the state $458 million.

“This is a tax credit that will help families deal with rising costs for basics like child care, care for dependents and groceries,” Healey told the panel.

The plan would also double the senior circuit breaker credit from $1,200 to $2,400 for low-income seniors with high property taxes or rent, which Healey said would help seniors in about 100,000 households stay in their homes.

Another proposal would overhaul the estate tax, which is charged to a decedent’s estate when their assets pass on to their beneficiaries.

Massachusetts is one of only a dozen states to charge a “death” tax, which applies to an estate worth more than $1 million in value. Assets can include stocks and proceeds from life insurance policies, vehicles and other earthly possessions.

Healey wants to raise the threshold triggering the estate tax to $3 million, which would cost the state an estimated $167 million in the next fiscal year.

The plan would also increase the state’s rental deduction from $3,000 to $4,000, allowing taxpayers who rent to deduct more of their annual costs from personal income taxes. Healey said the plan will benefit about 880,000 renters at a cost of about $440 million.

Healey said the buffet of proposed tax cuts, if approved, would also improve the state’s overall competitiveness and ability to attract investment and new businesses.

“Too many other states are passing us by, and that hurts our ability to compete, which hurts our people,” she said. “The package we put together will make a real difference.”

But several lawmakers and advocates for low-income workers argued during Tuesday’s hearing that some of Healey’s proposed cuts are skewed toward the state’s wealthiest residents.

Specifically, they took aim at the overhaul of the estate tax and Healey’s proposal to reduce the state’s short-term capital gains tax from 12% to 5%, which they say will benefit wealthy households and investors.

Peter Enrich, a retired Northeastern University law professor and tax expert aligned with progressive groups, told lawmakers that Healey’s proposed changes to the estate tax “would give a few thousand of the wealthiest families in the state a six-figure tax cut.”

“Estates worth more than $3 million – including those worth hundreds of millions of dollars – would receive the biggest tax break: a guaranteed $182,000,” he told the panel. “Massachusetts can reform the estate tax without large giveaways to the ultra-rich.”

Advocates also argued that the tax reductions would offset the benefits of the new “millionaires tax” approved by the state’s voters in the November elections.

Meanwhile, conservative groups criticized Healey’s tax plan for not going far enough to offset the impact on businesses from taxes and record high inflation.

“These proposals are half measures at best and not nearly bold enough to get us to a position where we will be competitive,” Paul Craney, a spokesman for the Massachusetts Fiscal Alliance, said. “We are hemorrhaging taxpayers to New Hampshire and Florida.”

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