Beacon Hill leaders scrapped their tax relief measure that would have sent one-time rebates to some taxpayers in the final hours of the legislative session this weekend, claiming they were blindsided by Gov. Charlie Baker and news from his administration of a 1986 ballot measure that would force the commonwealth to return about $3 billion to taxpayers this fall. Lawmakers said they could not manage to balance the existing relief mechanism and their economic development package, which also included long-term cuts, within the final hours of formal lawmaking.
But Mariano said that 1986 law would still deliver direct relief to taxpayers.
“We have 62F that’s the law of the land and it’s going to happen,” Mariano told reporters early Monday morning. “The governor has said it’s the law of the land and that’s worth, he thinks, $2.5 billion but he’s not even sure, and he thinks he can get it out this year. So I think that’s an important return to the taxpayers.”
The 1986 ballot initiative referred to as “62F” could trigger an estimated $3 billion in one-time direct tax relief based on income. The voter law that requires excess tax revenues above a certain threshold to be returned to taxpayers, appeared to catch Beacon Hill off guard, paralyzing Democrats as they struggled to decide how to move forward with $4 billion economic development bill that includes roughly $1 billion in direct, one-time tax relief payouts for middle-class taxpayers.
“The Legislature’s relief was much less tilted toward high-income earners than this will be,” said Massachusetts Budget & Policy Center Senior Analyst and Advocacy Director Phineas Baxandall.
Baxandall said that while sales and gas taxes have also contributed to the state’s massive excess tax revenue build-up, doling out rebates will be entirely based on income taxes, and “generally the higher the income, the bigger your check will get.”
“A perverse feature of 62F is that it spools back our slightly progressive income tax relief attempt — instead of giving one-time rebate checks that would be worth a lot more to middle- and lower- earners, it ties it to earnings,” Baxandall said. “It is taking steps backward in terms of progressivity.”
The Baker administration has predicted taxpayers could expect to see 7 percent of their 2021 income taxes returned if the 1986 law is triggered, translating to around $250 for an individual earning $75,000, based on current revenue estimates.
Baker last week said both relief plans were “eminently affordable” to do side-by-side, but Speaker Mariano said the bill will remain in conference committee.
Had the Legislature proceeded with its $4 billion-plus economic development bill that includes the $1 billion in tax rebates and cuts in addition to the 62F relief, Mariano said “we were going to be spending too much money.”
Lawmakers won’t know whether the tax-relief law will come into play and how much exactly would have to be returned to taxpayers until state Auditor Suzanne Bump certifies the state’s revenues in mid-September. The Baker administration estimates about $2.9 billion in excess tax revenues will be returned, but budget watchdogs at Pioneer Institute say it could be as much as $3.2 billion.
“We’re a bit more fiscally prudent and we’re gonna be here at the end of this year when, if the economy makes a downturn, we’re gonna be talking about reductions in line items, potential cuts in budgets, and maybe even if it gets bad eventually tax increases,” Mariano told reporters early Monday.
House Ways and Means Chairman Aaron Michlewitz told MassLive later on Monday that “nothing is off the table” in terms of long-term relief, but said lawmakers decided to pause to weigh the fiscal impacts of the 1986 law before moving forward.
“We still need some time to analyze what those impacts are. To go out there and spend $6 billion to $7 billion all at once in the middle of a potential recession and volatile economy at best isn’t something we were willing to just do,” Michlewitz said.
The Legislature’s decision to hold off means lawmakers’ attempts at providing long-term relief through overhauling the rental deduction cap, senior circuit breaker tax credit, and child care and dependent care credit, among other measures, don’t get addressed alongside the one-time relief, at least for now.
The Pioneer Institute’s Charles Chieppo placed the blame squarely on lawmakers, saying the 1980s law “wouldn’t have wreaked havoc one week before the session ended if they knew what the laws were.”
“If they come back in January and make it a top priority, they can quickly come to some longer-term agreements on the right balance between the one-time stuff, given huge surpluses now, and what they can work on on a longer-term basis to address some of these structural issues,” Chieppo said.
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