Democratic Governor of ‘Taxachusetts’ Embraces Big Tax Cuts

Business groups and budget hawks have praised the proposals as a ‘welcome surprise.’

Via Wikimedia Commons
The Massachusetts State House at Boston. Via Wikimedia Commons

Massachusetts’s new Democratic governor is proposing something her party rarely does: a large tax cut for wealthy individuals, businesses, and families in the state. 

Business groups and budget hawks — once fearful of Governor Healey’s liberal leanings — have praised her effort, with the conservative Massachusetts Fiscal Alliance calling the proposal a “welcome surprise.”

Ms. Healey was elected last November after serving for eight years as the state’s attorney general. Just eight weeks into her term, she has proposed the largest tax cut since the 1990s in order to make the state more competitive and hospitable to families, high earners, and corporations. 

The three pillars of the plan are an increase in the estate tax threshold, a cut in short-term capital gains taxes by more than half, and a tax credit for children and seniors. 

In a statement announcing her plan, Ms. Healey said she wants to attract new businesses and make the Bay State more affordable for its residents. It delivers “relief to those who need it most and makes reforms that will attract and retain more businesses and residents to our great state,” she said. 

“Governor Healey has taken a positive first step with this tax proposal,” the statement from Massachusetts Fiscal Alliance said. “The reform of our estate tax in particular is much needed to remedy our state from its outlier status,” adding that the tax “certainly contributes to the outflow of taxpayers from our state.”

The plan is made possible by strong revenue growth in recent years, a trajectory that is expected to continue. Between 2021 and 2022, the Bay State saw tax revenue increase by 21 percent, and the state now enjoys a budget surplus of about $5 billion. The previous administration sent more than $3 billion in tax rebates to Massachusetts taxpayers.

Currently, Massachusetts taxes estates worth more than $1 million after a person’s death. Oregon is the only other state to tax estates worth that amount. In all, nine states tax estates at higher thresholds and 39 states do not tax them at all. 

Ms. Healey wants to raise that threshold to $3 million. Her plan is even more ambitious than a proposal from Democratic legislators last year, which would have raised the threshold to $2 million. 

A longtime Democratic fundraiser and former Boston city council member, Larry DiCara, told the Sun that the tax relief plan will make Massachusetts more competitive.

“The most important piece is bringing the estate tax in line with the rest of the nation. We have the lowest threshold for the estate tax of any state. As a result, anyone who has a house in Hingham,” a wealthy suburb, “is subject to it” after the homeowner passes away, Mr. DiCara said. 

Ms. Healey’s capital gains tax cut is a carbon copy of the plan offered by her Republican predecessor, Charlie Baker. If adopted, the short-term capital gains tax would be slashed to 5 percent from 12 percent. 

A key pillar of her campaign was a tax credit for children, but her new proposal goes even further than her campaign pledge. The plan includes a $600 a month tax credit for any child under the age of 13 and for any dependent senior over the age of 65. 

Currently, Massachusetts offers a $300 a month tax credit for children under the age of 6, and a $250 tax credit for children between the ages of 6 and 17.

The proposal also includes increases in tax deductions for renters and low-income seniors, as well as increased funding for schools, transportation, and housing. 

In total, the tax cut would be even larger than the plan offered by Mr. Baker last year. He came to the negotiating table with a proposal for $693 million in tax relief. Ms. Healey’s tax plan would cost $742 million this year, and about $1 billion annually beginning next fiscal year. 

According to a nonpartisan journal, the World Population Review, Massachusetts ranks seventh among the states for total tax burden, which is a measure of all income, property, sales, and excise taxes paid by citizens.   

Ms. Healey’s proposal leaves some of her liberal allies disappointed. During her 2022 campaign for governor, she never mentioned changes to the estate tax or the capital gains tax, though she did highlight the child tax credit during her run. 

A liberal public policy organization, Raise Up Massachusetts, questioned the tax cuts. “We are deeply concerned that proposed changes to the estate tax  and short-term capital gains tax would deliver an enormous windfall to the richest members of our society,” the group said in a statement. 

It said the estate tax “would give a few thousand of the wealthiest families in the state a six-figure tax cut” and the capital gains tax reform would “reward day traders” for “risky financial maneuvering.”

Mr. DiCara said the tax relief bill is exactly what the state needs. “The renters credit and the child tax credit make tons of sense to me,” he said. “I’m a big fan of Healey’s. I think she’s going to govern from the middle, and I think she’s going to be a great governor.”


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