Governor Baker Offers Modest Tax Cuts With Revenue Surplus

Printed from:

By Michael P. Norton and Katie Lannan

Massachusetts Governor Charlie Baker, who has been open to raising taxes, on Friday outlined a new tax relief proposal that his administration says will benefit 1 million taxpayers with dependents.

In a $648 million spending bill that allocated surplus fiscal year 2019 revenue, Baker is proposing to double the income tax exemption for dependents from $1,000 to $2,000. The tax break would affect taxpayers who have children or care for dependent relatives who are elderly or have a disability, and is worth about $50 per dependent, according to the administration.

The supplemental spending bill also includes funding addressing fentanyl trafficking, drinking water contaminants, education for low-income students, and local roads and bridges.

To pay for the tax relief, Baker proposes depositing $175 million in surplus revenues into a tax reduction fund to support two years of deductions at the higher rate without affecting this year’s budget (fiscal year 2020) or the fiscal year 2021 budget. After that, the tax relief would then be incorporated into annual budget assumptions, according to the governor’s plans.

The 5.05 percent income tax rate is on track to fall to 5 percent on January 1 and the governor, in his bill, sets the income tax at that rate, bypassing near-term revenue tests. The fiscal year 2020 budget already assumes a 5 percent income tax rate, and the governor is not calling for any further changes in the income tax rate.

The governor’s tax proposals are expected to be entertained by the Legislature this fall, since lawmakers must close out the books on fiscal 2019 in the coming weeks.

Preliminary tax collections last fiscal year were $1.1 billion above budgeted estimates, according to the administration, and Baker said in May that he anticipated a surplus would “mean more significant deposits” into the state’s stabilization fund.

Under statutory requirements governing excess capital gains tax revenue, the state has already transferred $848 million into the stabilization fund. Baker wrote in his filing memo to lawmakers that $764 million of that money will stay in the fund, while a total of $84 million will go to reserves for pensions and future retiree health insurance.

The bill filed Friday makes what Baker’s office called a “milestone” deposit of an expected $168 million to the rainy day fund, bringing the balance to its highest-ever level at $3 billion.

On the public health front, the bill calls for $5 million to support regional fentanyl interdiction programs, and $3.5 million for additional spraying to reduce the risk of Eastern equine encephalitis. Seven human cases of EEE have now been confirmed in Massachusetts, and fentanyl was found present in 92 percent of all opioid overdose deaths in the first quarter of 2019 where a toxicology screen occurred.

Baker is recommending $100 million in education investments, including $50 million for “targeted assistance” in districts with high concentrations of low-income students, $15 million for school security infrastructure grants, and $15 million to support scholarships for high school students enrolled in early college programs.

The bill, which will be vetted and likely amended by the House Ways and Means Committee before coming before lawmakers for a vote, also proposes $50.5 million in grants to municipalities for local road and bridge improvements; more than $60 million related to clean drinking water; $10 million for mortgage down payment assistance; $6.9 million for fiscal 2019 snow and ice removal costs; $16.4 million to improve services for men who are civilly committed for substance use treatment; and $1.2 million in grants to address security needs at non-profit institutions.