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Governor Maura Healey wants certain state tax benefits that would mirror those in the federal “One Big Beautiful Bill” to flow through to local businesses, though she wants them to wait a year or two.
Leaders in the House of Representatives want the same thing, but there’s a catch: If voters pass an unrelated ballot question to reduce the state income tax to 4 percent, those state tax benefits for businesses might not happen at all.
State tax laws for businesses generally mirror federal tax law changes. But House budget writers tucked a provision in a spending bill advancing this week that would potentially block the latest such change, worth up to $400 million a year, if the ballot question passes in November.
At issue is whether the Legislature should approve a phase-in of tax provisions that would parallel changes included in the federal tax legislation that Congress passed last summer. Healey filed a bill in January delaying these provisions as they would apply to state taxes, for one or two years, to smooth over the impact on the state budget.
The House Ways and Means Committee is advancing its own version of that bill, inside a broader $1.8 billion supplemental budget, that would essentially adopt Healey’s delays. However, if the ballot question to reduce the state income tax passes in November, this new House legislation would prevent those state tax benefits from taking effect at all.
Healey’s delay was already somewhat controversial: Some business groups want to see the tax-cut benefits flow through immediately, while some progressive organizations would prefer to see these elements completely decoupled from the federal tax law.
Now, House leaders are advancing this plan to make those state tax benefits contingent on the state income tax remaining at 5 percent, instead of mirroring the federal tax law changes. The language reflects a growing concern on Beacon Hill that lawmakers may need to find at least $5 billion a year in savings, if that income tax cut takes effect.
“If the ballot initiative does pass, we’re going to have to come up with creative solutions to mitigate some of the revenue challenges,” said Aaron Michlewitz, chair of the budget-writing committee. “This would certainly be one of them. There will certainly be others as well.”
Michlewitz said the income tax cut, should it take effect, would also necessitate massive cuts to state programs. But lawmakers can’t make up the $5 billion difference by only trimming programs.
“It can’t all be cuts,” Michlewitz said. “The impact would be overwhelmingly devastating, particularly to our most vulnerable populations.”
The pro-business tax changes that could be delayed — or blocked completely, if the income tax ballot question passes — include tax benefits for domestic research and experimental expenditures, depreciable business assets, and business interest. The measure is scheduled to be approved by the committee on Tuesday, and debated on the House floor on Wednesday.
Michlewitz said he shares the business community’s broader concern about competitiveness, particularly after the COVID-19 pandemic made remote work more widely accepted.
“We do believe we have to find creative solutions to address these concerns going forward,” Michlewitz said. “We just don’t think lowering the income tax to 4 percent is the way to grow jobs or grow the economy.”
Jon Chesto can be reached at [email protected]. Follow him @jonchesto.
