Massachusetts budget writer expects $65 million windfall from federal tax overhaul

By Shira Schoenberg; February 6, 2018; The Springfield Republican
The Massachusetts state budget will get a one-time windfall of $65 million due to federal tax reform, Secretary of Administration and Finance Secretary Mike Heffernan said Tuesday.
Heffernan testified before the Ways and Means Committee at their first hearing on Gov. Charlie Baker’s fiscal 2019 budget proposal. Lawmakers will use the testimony from the budget hearings to craft their own versions of the state budget. Additional hearings are planned for Amherst, Worcester, Everett, Fall River, Beverly and Boston.
After Congress passed a major tax overhaul at the end of December, their quick action left state legislators as well as individuals and businesses struggling to understand its implications.
Heffernan said the Baker administration has been conservative in what federal revenues it counts on. He said Baker’s budget proposal does include one bump from tax reform: $65 million from U.S. companies that earned profits overseas.
The tax overhaul lowers the rate companies pay on overseas profits but no longer allows companies to escape U.S. taxes by keeping the assets overseas. The result will be a one-time windfall in tax payments as the change goes into effect this year.
Overall, Baker has proposed a $40.9 billion state budget for fiscal 2019, which begins in July.
Lawmakers questioned Heffernan on several aspects of the budget.
“Developing the state budget is an enormous responsibility,” said Senate Ways and Means Committee chairwoman Karen Spilka, D-Ashland. “We must be responsible stewards of taxpayer dollars while investing in the services necessary to support our most vulnerable residents and to foster a healthy and prosperous commonwealth.”
Spilka questioned a proposal to move 140,000 people from MassHealth to Health Connector insurance plans. Lawmakers rejected a similar proposal last year.
Heffernan said since the last proposal, the administration has improved the benefits available on the Health Connector plans. He said the savings to the state would be $60 million due to a larger federal match.
Rep. Shawn Dooley, R-Norfolk, asked Heffernan about the impact of Baker’s proposal to increase the Earned Income Tax Credit from 23 percent to 30 percent of the federal tax credit. Heffernan said the change is projected to cost the state $65 million in fiscal 2020. “It’s an incredibly effective way to get relief to folks in hard working lower income families,” Heffernan
said. “It’s a very effective way to deliver a lower tax burden and higher after tax cash flow to these folks.”
Heffernan was unable to provide specific data regarding the impact of a 2015 increase in the Earned Income Tax Credit.
Rep. Thomas Walsh, D-Peabody, asked about a proposal to apply the existing hotel tax to people who rent rooms out for more than 150 days a year. Heffernan said the goal is to avoid taxing people who rent their homes out occasionally.
The administration wants to ensure that people who are using services like Airbnb to effectively run hotel businesses are paying the same taxes as people running a hotel.
Although it is not directly budget-related, House Ways and Means Chairman Rep. Jeffrey Sanchez, D-Boston, lectured Heffernan on the lack of diversity in the state police force. “The leadership and the ranks relative to African-American people and Hispanics is woefully inadequate,” Sanchez said, saying there is one Latino in state police leadership and no African-Americans.
Sanchez said he is happy a woman was appointed to lead the state police, but more must be done.
“I’d like to see what the administration is going to do to diversify the state’s police force that’s on the streets throughout the commonwealth on a day-to-day basis,” Sanchez said. “Unfortunately, there are real issues relative to the diversity of the state police workforce. On the ground and in leadership, I think there may be opportunities the administration is missing.”
Without offering specifics, Heffernan responded, “I know the administration shares your thoughts and goals.”

 

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