By Alison Kuznitz and Colin A. Young
State House News Service
Decrying the state’s waning economic competitiveness and impacts of a voter-approved surtax on wealthy households, municipal officials pleaded with Beacon Hill lawmakers Thursday to pursue broader tax cuts in the new year.
Broad-based tax cuts and municipal reimbursements that could help lower property taxes were among the ideas aired during a Zoom session organized by the Massachusetts Fiscal Alliance and in the issuance of statements from a range of locally elected officials, including Weymouth mayor Robert Hedlund and officials from Attleboro, Wakefield, Reading, Holyoke, Marion, Beverly, and Chelsea.
New Hampshire and Florida are Massachusetts’s top competitors, said Massachusetts Fiscal Alliance spokesman Paul Craney, as he suggested that the state Legislature examine and counteract how those states are luring Bay Staters and their businesses.
The Democrats who run the House and Senate and Governor Maura Healey agreed on about $1 billion in targeted tax relief measures this year, and while competitiveness challenges are informing numerous public policy debates, Democrats have not indicated whether they plan to continue to seek tax code changes as part of ongoing deliberations about making the state more affordable.
“We need them to focus on economic competitiveness for next year. That has to be a priority — it can’t be something they think they checked off the box for this year,” Craney, joined by local elected officials, said during the virtual press conference Thursday, December 21.
Ed Dombroski, a Wakefield town councilor, said he has observed an out-migration of businesses and entrepreneurs due to what he described as the “devastating” impact of the so-called millionaire’s tax, which is designed to funnel money into state transportation and education investments. The new constitutional amendment approved by the voters in November 2022 imposes a 4 percent surtax on all household income exceeding $1 million per year.
He said the surtax applies to the retirement “nest egg” of small business owners, whose life savings are intertwined with their business assets.
“I’ve spoken to leaders in neighboring states, very high-ranking officials in neighboring states, who are delighted by the tax policies that Massachusetts currently has because we’re quickly getting back to that infamous label of ‘Taxachusetts,’ ” Dombroski said. “New Hampshire is a very short drive from the Greater Boston area and people realize that. With the amount of geographic mobility that people have now, the notion that people are going to stay in Massachusetts and submit to an economically less competitive environment, it just defies common sense.”
Plymouth County Commissioner Jared Valanzola, who said he serves 27 communities, said local officials are grappling with budget concerns prompted by an exodus of residents who couldn’t afford to live in the state.
“I’m optimistic and hopeful that the Legislature and the governor will really convene and put their collective minds together to figure out different ways to make the state more competitive,” Valanzola said, as he pleaded with the state to lessen the burden on local communities and small business owners.
The Massachusetts Department of Revenue has estimated the income surtax could bring in between $1.578 billion and $2.06 billion in fiscal year 2024, and between $1.777 billion and $2.127 billion in fiscal year 2025.
People are leaving the state due to high costs of living, but not mainly because of the surtax, according to UMass Dartmouth professor Michael Goodman. The Raise Up Massachusetts coalition, which advocated for the surtax, has also downplayed the risk of high-earners leaving the state.
“The Fair Share Amendment is already making a real difference in the lives of people across Massachusetts,” spokesman Andrew Farnitano said. “Public colleges are more affordable, and we’re starting to repair the MBTA’s infrastructure and fix bridges across the state. School meals are now free for all students, and we’re expanding free local bus service and building new green public schools.”
Craney called the roughly $1 billion targeted tax relief package approved this year — which contained relief for families, renters, and some of the state’s most vulnerable residents, as well as overhauls to the short-term capital gains and estate taxes — “very minor.”
“They have to make this a priority,” Craney said of prioritizing economic competitiveness. “The millionaire’s tax is not going away — it will continue to devastate Massachusetts.”
Massachusetts tax code changes in the new year include a $110 stepped increase in the child and dependent tax credit and a requirement that taxpayers to use the same filing status on both state and federal income tax returns, a measure that supporters said would restrict workarounds to avoid the new income surtax.
The Tax Foundation released its end-of-year roundup of tax code changes Thursday, and some who took part in MassFiscal’s call pointed to actions in other states as a template Massachusetts should follow, without offering specific examples. New Hampshire, which along with Florida is one of the two most common destinations for people leaving Massachusetts, is accelerating its phaseout of a tax on interest and dividends income in 2024 by reducing that rate from 4 percent to 3 percent and preparing for its elimination in 2025.
Craney touted recommendations released by the Tax Foundation in November 2022, including pursuing property tax and corporate income tax reform. The analysis said nixing or cutting the capital stock tax “would be a good place to start.”
Carlo Bacci, a member of the Reading board of selectmen, said he and his wife considered leaving Massachusetts before the surtax was approved to reduce their expenses and stay competitive. They own a chocolate factory in Swampscott.
“All these increase in taxes, the millionaire’s tax, it makes us rethink things on how we want to stay, live, work, enjoy Massachusetts,” Bacci said. He implored the state to “do more for small businesses.”
“I love Massachusetts, I love New England, but moving the business is one of our priorities and looking to get out of the state,” he added.
Governor Maura Healey plans to file an economic development bill in the new year, based on her administration’s accompanying plan to boost the state’s economic edge, invest in sectors like health care and the life sciences, and improve efforts to attract and retain talent. While the plan incorporates “great things,” Dombrowski said local officials are contending with the mindset of the Legislature.
“That creates the biggest obstacle here,” he said. “I think anyone could propose that plan and it would be widely well received, but you know that the challenges will be in the details of implementation, and when you have a Legislature that does not present as aligned with acknowledging that we have some real issues, especially in terms of our revenue coming in, as you know our state revenue has been down considerably … ”
Dombrowski said Healey’s plan cannot come into fruition “unless and until we have a Legislature that’s willing to do the hard work of recognizing that a mindset needs to be changed, that broad-based tax relief that focuses primarily on the middle class is going to be necessary.”
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