Baker estimates the 1986 law will result in $2.5 billion in rebates

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    With just three days left in this year’s formal sessions, Beacon Hill Democrats may have to bring back their long-debated tax reform and $1 billion bailout plan now that the 1980s law appears to be largely moved deep Beacon Hill’s memories will be triggered by a fiscal year 2022 surplus that will return nearly $3 billion to taxpayers.

    With a historic surplus expected for the budget year that ended June 30, Democrats in the Legislature are seeking about $500 million in permanent annual tax credits and credits and another $500 million in one-time payments of $250 to middle-income earners. But the idea that the 1986 voter law, which puts a cap on state tax revenue growth and requires the surplus to be returned to the roughly 3.8 million people who paid income taxes last year, could be passed for only the second time in history has forced Gov. feel confident that the residents of the Bay State will eventually receive even more relief.

    “Based on the performance of our economy and tax collections over the past fiscal year, we believe taxpayers will receive a significant return under current state law later this year,” said Gov. Charlie Baker. said Thursday morning. He added: “We think the number is probably north of $2.5 billion, which will be a tax benefit for people in Massachusetts.”

    Later Thursday, Baker’s budget office said it estimated taxpayers would be set to return $2.965 billion under the law, known as Chapter 62F. If that number holds, it would result in taxpayers getting a refund of about 7 percent of the income tax they paid in 2021, the Administrative and Financial Office said. A person with $75,000 in taxable income can expect to see an income of about $250, officials said.

    Under the terms of the tax referendum passed by Citizens for Limited Taxation and approved by 54 percent of voters in 1986, if incomes grow more than wages, the excess money must be returned to taxpayers. Once the auditor determines that the state did collect tax revenue in excess of the limit, the Department of Revenue “will take all necessary steps to enforce a tax credit equal to the total amount of such excess,” the auditor’s office said.

    Auditor Suzanne Bump’s office has until Sept. 20 to make a final determination of how much state tax revenue should be returned. Bump’s office said Thursday that the data needed for the report was not yet available.

    CommonWealth magazine was be the first to report about the possibility that the limitation of excess income will be triggered.

    CLT, which pushed for the 1986 law in the Massachusetts High Technology Council, said Thursday that the idea that the excess income benefit could be launched for the first time in 35 years was “exciting.”

    “I’m sure Barbara Anderson is up there looking down on us with a smile on her face, throwing her fist up in the sky,” Chip Ford, CLT’s executive director, said Thursday, referring to the late CLT leader who co-sponsored the proposal. 2 1/2 and a staunch opponent of tax-raising efforts in the Massachusetts state legislature.

    The Massachusetts Fiscal Alliance also praised Anderson and the CLT on Thursday, saying their legacy is “so strong that they are still providing the protections Massachusetts taxpayers did four decades ago.”

    “Everything is on the table”

    The opportunity to catch legislative Democrats off guard as the potential windfall for taxpayers has not been a public discussion throughout the long budget cycle and while the revenue surplus has been accumulating. None of the current members of the legislature held office in 1986. The Dean of the House, Representative Kevin Honan, was elected in 1986 and took office in 1987, and the Dean of the Senate, Senator Mark Pacheco, was first elected in 1988.

    Ways and Means Chairman Sen. Michael Rodriguez and Rep. Aaron Michlewitz told reporters Thursday afternoon that they are still trying to figure out what the new relief might mean for their own tax plans, which have stalled amid negotiations on a massive economic development bill that must be completed until the end of the weekend.

    “I definitely think it puts everything back on the table for a conversation about exactly what we can afford and what we can’t afford going forward. And again to [Rodrigues’] The point is that when we did this package, we did it without expecting the trigger to necessarily take effect. We didn’t have the revenue numbers, we didn’t know what the wage growth estimates were going to be,” Michlewitz said of the tax relief package announced July 7 by House and Senate leaders. “So I don’t think we had that potential number in play when we made these decisions. So it’s clear that there is still something to be put on the table for discussion. … We have to rethink what we can afford in the future.”

    Ways and Means chairmen have not ruled out that the Legislature will amend the 1986 law to remove the automatic relief.

    “We haven’t gotten to the point where we’ve made any decisions,” Rodriguez said when asked if changes to 62F were being considered. “Remember, the administration just discovered and informed us about this literally days ago. And we had to figure out, we’re still trying to figure out, and we’re working with outside people who know the tax code even better… How did COVID affect that? The fact that, you know, we know that billions of dollars have come into the Commonwealth with COVID relief dollars, with supplemental unemployment insurance and things like that. How does that affect the fact that there was no COVID pandemic in 1986 when this statute was registered?”

    Michlewitz added: “Everything is on the table in this conversation right now. You know, in the last couple of days here.’

    While there are always competing interests when the state has unappropriated money on hand, Baker said the state’s financial situation means both the excess revenue tax break and the Legislature’s tax reform and direct package could happen. payments, which is approximately 1 billion dollars.

    “The tax breaks that are now before the Legislature are entirely available in the context of the rest of this. I mean, you’re talking about a tax year last year in which tax revenues increased by more than 20 percent, which came after an increase in tax revenues the year before, which increased by 15 percent,” the governor said. . “I I mean, it’s an unprecedented increase in tax revenue, which in a way is exactly what this thing was designed for. [to do]to ensure that people in Massachusetts share in this windfall.”

    A Baker administration spokesman argued Thursday that the Legislature’s plan to target tax cuts for a select group of taxpayers and the idea of ​​returning one-time money the state essentially collected in excess are two different concepts and should not interfere with the other.

    Baker also pointed to the fiscal year 2023 budget he signed Thursday morning, which includes significant spending increases that he said are “absolutely affordable.” He said the state has “plenty of room” and that he believes there will still be enough left over to make additional investments in the MBTA and other things in the final fiscal year 2022 closure bill.

    “Yes,” Baker said, “we think it’s affordable.”

    Through mid-June, the last month of fiscal year 2022, Massachusetts had collected $39.199 billion in tax revenue for fiscal year 2022, enough for the Massachusetts Taxpayers Fund to estimate a surplus of about $3.5 billion. The DOR has not yet released final fiscal year-end revenue numbers or numbers covering the entire month of June, typically the second-biggest month for revenue. An administration official said Thursday that June will be a big month that exceeds the benchmark.

    But Baker’s budget office said Thursday that the state’s revenue was $3.5 billion above benchmarks through June, with $2.1 billion still available after legal transfers of excess capital gains. On top of that, the administration said, $3.1 billion in “tax increments” or additional levies above benchmarks between January and May. Subtracting $3 billion in excess credits or rebates would leave $2.7 billion available, the administration said.

    After factoring in the roughly $1.5 billion in state spending slated to be included in the economic development bill, as well as some other spending, an administration official estimated that $400 million to $500 million could be left over for the final supplemental budget.

    How it will work

    The state law that the auditor’s determination that the state received income in excess of the limitation “shall result in a credit equal to the total amount of such excess” and that the credit “shall be applied to the personal income tax liability of all taxpayers at that time. on a proportional basis, personal income tax liabilities incurred by all taxpayers in the immediately preceding taxable year.”

    But the law didn’t come into play until 1987, when collections topped the cap by $29.22 million and taxpayers claimed nearly $17 million, and Budget Chief Michael Heffernan said his team was working to figure out exactly how the credits — whether , perhaps discounts, as Baker has repeatedly referred to them — will work.

    “We are looking for the fastest and most efficient way to return this money to the taxpayers,” said the Minister of Administration and Finance.

    This is a point Michlewitz would also like to clarify.

    “You even just said that there is now a loan [or] a discount I don’t think we have a complete answer as to what it actually is,” he said after a reporter asked about rebates or credits under 62F. “I think the administration also gave a mixed message about that conversation. So a full review and a full understanding of that will be critical for us to really know whether we need to move forward with any conversations related to 62F.”

    The only time the excess income limit was reached, in fiscal year 1987, taxpayers were given a credit of $29.22 million by adding a line on their 1987 Massachusetts individual income tax return “in which each individual taxpayer could contribute his individual the calculated share of the loan in the amount of 29 million 221 thousand 675 dollars,” the audit service noted.

    From fiscal year 1987 to fiscal year 2021, net state tax revenues increased by about 328 percent, from about $8.1 billion to more than $34.65 billion. “Allowable” state tax revenue — or the most that can be collected without hitting the cap — rose 356 percent over the same time period, from $8.07 billion to about $36.79 billion.

    Each year from fiscal year 1988 on 2021 fiscal yearthe state auditor determined that the net state tax revenue was less than the allowable state tax receipts and that, therefore, no tax credit was claimed under 62F.

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