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Here's who gets a tax break under Baker's new budget plan
You heard it first in his final state of the commonwealth address Tuesday night: Gov. Charlie Baker wants to give a tax break to parents, low-income earners, renters and seniors.
But they aren’t the only ones.
The Massachusetts governor revealed his proposed budget for the upcoming fiscal year during a press conference Wednesday afternoon. With it came specifics on the tax cuts he’d like to pass during his final year in the Corner Office, as well as a couple additional beneficiaries that went unmentioned in his speech Tuesday.
Here’s a look:
- Low-income earners: Baker’s proposal would raise the floor at which Massachusetts residents begin to pay the state’s 5% income tax from $8,000 to $12,400 for single filers, from $16,400 to $24,800 for joint filers and from $14,400 to $18,650 for heads of household. Baker’s office says it would align the state’s “no tax status” threshold with federal levels, effectively eliminating income taxes for 230,000 residents.
- Lower-income seniors: For residents over the age of 65 who make less than $63,000 a year (or $93,000 for married couples), Baker’s proposal would double a refundable tax credit they can claim on their property taxes, from $1,170 to $2,340.
- Renters: Massachusetts currently lets renters deduct 50% of the yearly rent they pay from their taxes up to $3,000. Baker’s proposal would raise the cap to $5,000.
- Parents: Baker’s proposal would double the state’s dependent care tax credit, which can be claimed by any resident with a child under the age of 12, a disabled dependent or an elderly dependent over the age of 65. Baker's proposal would increase the annual credit from $240 to $480 for single filers with one eligible dependent and to $960 for single filers with two or more dependents. It would also double the dependent care credit rate to $360 for household filers with one qualifying dependent and to $720 for households with two or more.
- Estates: Massachusetts currently imposes a one-time tax on properties valued above $1 million when they are transferred from someone who died to a beneficiary. Baker’s proposal would raise that $1 million threshold to $2 million, as well as change the estate tax so that it only applies to the value of a property above $2 million, rather than the full amount.
- Investors: Baker’s proposal would reduce the state’s tax on capital gains — like selling a stock — from 12% to 5%, the same as the state’s income tax.
In total, Baker’s office estimated that the tax breaks would save residents — or cost the state government — $700 million. Baker’s administration said no services would be “sacrificed” as a result. Noting that the state’s rainy day fund now stands at $4.7 billion, the Republican governor called the cuts “not only affordable but doable” in the context of his other spending initiatives.
The proposals still have to go through the State House, and Democratic leaders were very noncommittal about the cuts after Baker previewed them on Tuesday. In other words, don’t write those tax adjustments into your individual budgets quite yet.
Still, Baker expressed optimism Wednesday.
The governor noted that the State House has “taken up some of our tax relief proposals” and said that both Democrats and Republicans in the Legislature have proposed similar tax breaks in the past.
While he said the increased credits and changes to the state’s “no tax status” threshold would help groups reeling from the COVID-19 pandemic and rising costs, Baker also contended that the cuts to the estate and capital gains tax — seen to disproportionately benefit higher earners — were necessary to keep Massachusetts competitive with its national peers.
“I think there's a lot of interest in some of these proposals because they are designed to do two very simple things,” Baker said. “One is to provide some tax relief to some people who I think most people would agree would benefit from it, and secondly, to deal with some very significant issues that play into our competitive position at a point in time when a lot of people are figuring out that they can live and work practically anywhere.”
