State House progressives file bill to cap tax refund for millionaires, give more to poor

Kinga Borondy

Telegram & Gazette

Published Oct 13, 2022

BOSTON — A group of progressive Massachusetts legislators Wednesday filed a bill that would rejigger the tax refund going to residents under the Chapter 62F law, capping givebacks to million-dollar-plus earners at $6,500 and redistributing the remainder of the $2.9 billion to allocate an extra $200 to about 3.5 million state residents.

The group, led by Rep. Michael Connolly, D-Cambridge and Somerville, filed the legislation in recognition of spiraling inflation, rising gas and food prices and the coming winter heating season, with a predicted 60% increase in fuel costs.

The measure would still return the $2.9 billion overage to residents while distributing the funds in a more equitable manner, said Connolly.

More money for lower-income earners

It would put more money in the pockets of the state’s neediest residents at a time when they need it the most, said Sen. Jamie Eldridge, D-Acton.

The Chapter 62F law, enacted through ballot initiative and approved by voters in 1985, ties the amount of collected tax revenue the state is allowed to keep to state salaries and wages. Once that cap is exceeded, the overage must be returned.

The law has been triggered once in the three decades since it was passed, in 1987. The overage then totaled a mere $29 million and was issued as a credit that could be claimed by a taxpayer upon filing.

Daniel Winslow of the New England Legal Foundation said the fact that the law was passed by ballot initiative means that it must be followed.

"The legislators can do what they want in coming years to the measure, but it cannot be undone (this year) without just compensation," Winslow said. He represents 24 taxpayers who are willing to contest any changes in court.

This year, Gov. Charlie Baker has proposed the state cut checks that will be timed to reach people’s pockets, or their bank accounts as a direct deposit, in November and December.

There is no indication, Connolly said, that the governor is aware of, or on board with, their legislation.

“The lowest 20% of income earners can expect a $9 refund from the Chapter 62F law,” said Connolly at a morning press conference Thursday, where he was joined by Eldridge and Rep. Jamie Belsito, D-Topsfield. Connolly contrasted that refund with the refund expected by those earning $1 million or more. Those checks would start at $6,500 and soar to $32,500 for those earning upward of $5 million.

More than a quarter of the $2.9 billion would be lining high-income earner pockets, leaving the middle and lower-income classes out in the cold.

Connolly pointed out that low income wage earners pay a proportionately larger share of their salaries in taxes: mostly in sales and gas taxes. They are the ones who would benefit the most from the state-issued windfall, he said, not the millionaires.

The lawmakers questioned the wisdom of returning collected tax revenue when the state is facing a housing crisis, safety issues on its public transportation system due to funding shortages, deferred maintenance and investment in public parks and open spaces, a lack of pre-K and childcare availability and the astronomical cost of public higher education.

Connolly said many of his constituents in Cambridge and Somerville expressed a desire to redirect the overage to initiatives such as extending the state’s public transportation system, investing in affordable and low-income housing starts to name two.

The lawmakers announced the need to revisit the law in the future, noting it was enacted at a time of taxpayer revolt.

Massachusetts currently has a 5% flat income tax, a rate that has been whittled down over the years, Connolly said. The increase in collections comes not from an increase in the tax rate, but from an increase in sales and gas tax revenues as well as accelerated capital gains income.

Lawmakers question the future of 62F

“If revenues continue to be robust in the future, we have to look at Chapter 62F, and the impact of returned tax revenue on the state’s transportation system, its parks,” and other projects, Eldridge said.

The collected tax revenue being refunded is from all sources, not just income taxes. This includes 19 other sources of revenue as well as the lottery, excise taxes, taxes collected by the state athletic commission, even insurance and unemployment.

There is an added caveat, Connolly noted, to the unprecedented rebates.

In her report, Auditor Suzanne Bump warned legislators and taxpayers that one of the key elements that accounted for the rise in tax revenue was unprecedented capital gains and the “temporary” impact of pass-through entity excise payments.

“I would underscore for the Legislature and the public one key element in the FY22 revenue increase,” Bump wrote. “The change in the taxation of so-called pass through business entities which just took effect last year generated $2.25 billion in revenue, much of which has yet to be claimed in the form of personal income tax credits and deductions by the business owners.”

Refund will impact proper allocation of pass through taxes 

Those revenues are credited to the state’s coffers through special legislation passed to ease the tax bite on certain businesses after the federal government capped state and local tax deductions at $10,000. Massachusetts then passed laws to allow certain business owners to claim business revenue as personal income.

That amount, estimated to be $2.25 billion, has yet to be claimed as deductions or credits.

If the refund goes as Baker plans, taxpayers could receive 13% of their 2021 tax bill. The rebates would also factor in any claimed tax credits: earned income tax credits, senior circuit breaker credits or dependent deductions.