It’s raining money on Beacon Hill, with surprisingly high revenue from all kinds of taxes. Now, because of an obscure 1986 law, the state is about to return some of it to residents. But unless the Baker administration gives the Legislature time to revise the law, the money will come back in an unfair way that will stiffen the state’s poorest residents.
We all pay state taxes: sales taxes, gas taxes and, of course, income tax. Under the 1986 law, the result of an ill-advised voting question, when the state collects more tax revenue than allowed, it must return it. The law has only been triggered once before, and only for a relatively small surplus of $29.2 million; this time there is nearly $3 billion to return to taxpayers.
So who gets what? The Baker administration proposes depositing refunds directly to taxpayers; according to the law, the exact amount that taxpayers will receive will be proportional to what they paid in income tax. Under the 1986 law, the state will make no effort to account for other types of state taxes paid by residents, even though surprisingly high sales and gasoline tax receipts are the one of the reasons the state has such a surplus to begin with.
But because the poor tend to pay a higher percentage of their overall tax burden in these taxes, while sometimes paying no income tax, the refunds will have a regressive effect.
The biggest beneficiaries of this tax relief program will be the wealthiest households in the state; the poorest inhabitants have nothing to gain. In fact, according to the Massachusetts Budget and Policy Center, households earning more than $1 million could receive more than $28,000, while the poorest 20% of households could get a discount as low as $9. People earning less than $25,000 will not receive any relief.
This outcome would be a major failure of fiscal policy on the part of the legislature. Since when is it a good idea to send billions of dollars primarily to wealthy residents when a recession and budget deficits are predicted? The good news is that it doesn’t have to be that way. State Rep. Mike Connolly introduced legislation that would cap tax credits at $6,500 for the wealthiest households, allowing the state to redistribute the $3 billion more equitably among the rest of the household. Massachusetts taxpayers.
But time is running out. Last month, Governor Charlie Baker announced that millions of residents will start seeing refund checks or direct deposits in November, and once that happens it will be too late to adjust how refunds are calculated and distributed. But while Connolly’s legislation faces an uphill battle, there’s no reason for it to be constrained by the timeline imposed by Baker.
In fact, some legal experts have raised questions about whether Baker’s method of distributing the rebate actually complies with the state constitution. The law requires residents to receive a tax credit when filing taxes next year rather than a direct cash payment, as Baker provides. The potentially problematic reason is that a direct cash payment may legally be considered an appropriation rather than a credit, and only the legislature is authorized to appropriate public funds. Indeed, the Supreme Judicial Court upheld the law in 1987 because it instituted a tax credit and did not earmark money.
The The Baker administration should stop the mailing of those checks next month and allow the Legislature to consider Connolly’s bill. After all, if Baker hadn’t created the unprecedented refund check plan, residents wouldn’t have seen the credits on their 2022 tax forms until next year — just like they did last time around. that the law was triggered. There is no reason to rush the process now.
What the Governor and Beacon Hill lawmakers should consider is that the reason this tax law was triggered this time around was not because Massachusetts raised taxes to a rate above the growth of wages and salaries – which this law was intended to prevent. (State income taxes actually declined steadily for 20 years until they hit 5% in 2020.) On the contrary, more regressive taxes, such as sales and gasoline taxes, generated higher revenue, and the bulk of excess revenue of nearly $3 billion – $2.25 billion, according to the auditor State – can already be claimed through other tax credits and deductions.
Unless the legislature changes the law, the result will be nonsense. Massachusetts’ poorest residents may not pay income tax, but the tax they pay on the goods and services they buy will add to the pot that will now be redistributed to people much richer than them. With high inflation and a looming recession, this is not only unfair; it is an irresponsible policy. And what voters need to know is that the governor and the legislature can do something about it if they really want to.
Editorials represent the opinions of the Editorial Board of The Boston Globe. Follow us on Twitter at @GlobeOpinion.