Governor Healey defends “absolutely essential” tax cuts

BOSTON — Two years ago, lawmakers spent months discussing tax relief before backing away. Last year, they finally enshrined a major package into state law. And now, 2024 has kicked off with a sudden relitigation of the debate.

After Gov. Maura Healey on Monday unveiled $375 million in mid-year spending cuts to balance the state budget, progressive groups painted the maneuver as a byproduct of a relief package that they feel was unnecessarily packed with benefits for wealthy Bay Staters.

Healey, meanwhile, has carved out an enthusiastic defense of tax relief, declaring herself “proud of the tax cuts.”

Criticism from groups like the Massachusetts Teachers Association might have been on her mind Tuesday morning. While she was hosting a press conference to announce a $1.2 billion bill calling for long-term IT investments, Healey was asked whether the investment was justifiable given the current economic headwinds.

“Oh, absolutely,” she said. But her answer did not end there.

Healey went on to say there had been “a lot of conflation of movements” in the hours since her team announced the spending cuts.

“The tax cuts were essential. We as an administration have said from the outset we’re about making Massachusetts more affordable and more competitive. I’m proud of the tax cuts,” she said. “I’m proud of the fact that this spring, seniors are going to see a doubling of the circuit breaker, money back in their pockets. Families this spring are going to see the most generous tax credit in the entire country, money back in their pockets. These were all efforts to make life more affordable for folks in the state.”

Healey, who made a campaign promise of finalizing the tax relief that lawmakers advanced and then abandoned under former Gov. Charlie Baker, said about 70 percent of the package’s value supports “lower- and middle-income families across Massachusetts.”

“That’s real savings. That’s really important, and it’s a delivery on the promise that we made,” she said.

Lawmakers expect the package will provide $561 million in relief this fiscal year and more than $1 billion annually by fiscal 2027. It combined breaks and credits for seniors, renters, caregivers and low-income families with business-backed changes including a cut to the short-term capital gains tax rate, a higher estate tax threshold and a change to how the state calculates taxes owed by multistate companies.

Many of the changes took effect retroactively to Jan. 1, 2023, though effects on the state’s revenue picture might not become clear until taxpayers finish filing annual returns in the coming months. The state Department of Revenue said in its most recent monthly report that “tax relief bill impacts are expected to affect revenues beginning in December 2023 or January 2024.”

Healey signed the tax relief into law on Oct. 4, less than a year after voters approved a new income surtax -- which Healey and legislative Democrats supported -- on high earners designed to generate more revenue for transportation and education investments.

At the time, state tax collections were about $170 million short of official estimates for the first three months of the fiscal year. Through December, the gap has widened to $769 million, prompting the administration on Monday to downgrade the revenue forecast and Healey to implement $375 million in unilateral spending reductions, known as 9C cuts.

Groups on the left and on the right seized on the action, arguing that the tax relief Healey approved last year was irresponsible or that it in fact did not do enough to keep more taxpayers rooted in the Bay State.

The Massachusetts Teachers Association on Monday recalled voter approval of the 4 percent surtax on personal income above $1 million, which the administration estimates could generate at least $1.5 billion this year.

“Massachusetts voters made their views clear: They wanted the very wealthy to pay a little more, so that we could invest more into our public education and transportation systems. We’ve already seen incredible gains from the first year of Fair Share revenues, including new investments in public preK-12 and higher education. Those same voters are no doubt stunned by today’s announcement about state budget cuts,” MTA President Max Page and Vice President Deb McCarthy said. “When there was discussion of providing tax cuts to the very rich, we warned that cuts have consequences. These tax cuts gave millions of dollars to the richest members of our society. Today, we are seeing the fall out: cuts in funding -- similar in size to the tax cuts given to the very wealthy -- for education, transportation, childcare and housing, which will impact regular, working people.”

Progressive Massachusetts, which describes itself as a grassroots organization with local chapters, called itself “disappointed and disturbed” by the budget cuts, contending they will “disproportionately harm the most disadvantaged members of the Commonwealth.”

“Last year, advocates repeatedly stressed that now was not the time for permanent tax cuts, as signs of lower revenue collection were already coming. The Legislature refused to listen and instead passed a tax cut package that included regressive tax cuts almost equivalent in size to these draconian cuts,” the group said in an unsigned statement. “It should not be lost on us that we never see emergency pauses of regressive tax giveaways; the solution is always one that falls on the backs of the poorest.”

Other figures who backed the relief package were more skeptical about whether it could be blamed for the state’s sluggish tax collections six months into the fiscal year. Zachary Donah, president of the Massachusetts Society of CPAs, said it’s “too soon to know the impact on revenues, but we hope to have more to share on that soon.”

“We do think the tax reform package was still the right move. The Administration is thinking about competitiveness from multiple points of view, and tax is a big one,” Donah said, referencing his group’s research that found a high share of Bay Staters who earn $1 million or more have considered relocating due to taxes.

“The fact of the matter is we’re looking at revenue trends over the last few months, and I think the tax relief package is something that was fully paid for in the budget. A lot of the behavioral impact of that you’ll likely see in April when people file their returns,” added Massachusetts Taxpayers Foundation President Doug Howgate.

The governor doubled down on her ongoing support of the package later in the day Tuesday when WGBH’s “Boston Public Radio” host Jim Braude asked Healey if she had any regrets about the tax code changes amid the tightening financial outlook.

“Not at all,” Healey replied. “The tax cut was absolutely, in my view, imperative. It was imperative to make this state more affordable for people.”

After Healey rattled off talking points similar to those she raised in her morning press conference, Braude said the part of the law that roughly doubles the threshold at which the estate tax kicks in from $1 million to $2 million “is not going to those people, though, it’s going to wealthier people.”

Healey replied with a personal anecdote about the estate tax. It was Halloween, she said, and she was at home in Arlington -- a town whose median household income is about 40 percent higher than the state as a whole, according to Census data -- when a neighbor approached.

“[He] says, ‘You know what, we just sold’ -- and this is in our little neighborhood in East Arlington -- ‘We just sold our mom’s house around the corner, and thank you. Because of that estate tax, my brothers and sisters and I’ -- they’re probably in their 60s -- ‘we’re going to be able to save $60,000 to $70,000. Thank you, because that’s going to help us support our kids,’” Healey recalled the neighbor saying.

She continued, “We’re one of only 12 states with an estate tax in the entire country. By increasing that threshold from what it was up to $2 million ... it allows people like that fellow to see, to recognize the savings.”

This is a developing story. Check back for updates as more information becomes available.

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