Since the narrow passage of the 4% income tax surcharge (millionaires’ tax) in the fall of 2022, Massachusetts has seen its economic competitiveness sharply decline. According to the Tax Foundation, after the passage of the millionaire’s tax, our state’s “business tax climate” sunk from 36 to 48 best state in the country. Due to this income tax hike, only California, New York and New Jersey are worse off than Massachusetts. This tax is applicable to all forms of income including home sales, small businesses, retirees, and high income earners.
Massachusetts Fiscal Alliance supports broad based tax cuts and eliminations in order to become competitive with surrounding states and states across the country, keeping in mind the current era of remote work. The top two states taxpayers flee to are #1 New Hampshire and #2 Florida. Massachusetts is among the worst ranking states in the country for outward migration of taxpayers. NH and FL do not have a state income tax, do not have capital gains taxes, and do not have an estate tax. If Beacon Hill politicians want to stop the exodus of taxpayers fleeing the state to NH and FL, we must be competitive starting with these issues where we are an outlier.
In July 2022, Speaker Ron Mariano and Senate President Karen Spilka ended the two-year legislative session without passing a modest tax reform package. Now, the legislature is considering another round of tax reform and legislative leaders are still reluctant to pull the trigger and actually pass a bill. Within each branches proposals are some very modest tax relief measures and some bad policies all together. Governor Maura Healey has also offered her own proposal. MassFiscal highlighted some parts of these plans below.
Modest Tax Relief – A Start…
While these modest tax reductions are a step in the right direction, MassFiscal believes they would not stop the outward migration of taxpayers. Only broad-based tax cuts and eliminations will do that.
-Governor Healey and the House recommended a reduction in the short-term capital gains tax to 5% from the current rate of 12% in which we are a national leader.
-Governor Healey recommended a reduction for the estate tax threshold from $1M to $3M and an elimination of the cliff effect to this tax. Currently, MA is one of only a handful of states that collect an estate ta and have the lowest threshold.
-The House bill essentially eliminates the voter approved law known as 62F, which caps revenue collected through taxes and refunds money back to the taxpayers.
-The Senate bill adds a “marriage penalty” for incomes, so that married couples that have a combined income of $1M or more will be subject to the new surtax.
-The House and Senate bills only recommended a changing the estate tax threshold to $2M, which would still keep us as a national outlier, and do little in terms of making us competitive.
-The Senate did not recommend any relief for the short-term capital gains tax.
The House and Senate have passed their tax relief bills and a final bill is still not public yet. Currently, lawmakers are negotiating a final bill. Once a final bill is public, MassFiscal’s policy team will carefully review it and let you know if it will make Massachusetts more economically competitive. Sign up for email updates to stay updated….
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