GOV. CHARLIE BAKER on Friday enacted a budget of $ 47.6 billion for fiscal 2022, which began two weeks ago.
While he let most of the budget become law, Baker, who has a section-based veto, has had multiple disagreements with lawmakers over tax policy. He vetoed a delay in implementing a state tax deduction for charitable donations. He also vetoed attempts by lawmakers to eliminate two tax credits targeted at specific types of businesses and discussed with them the details of a new corporate tax benefit.
Baker, a Republican, is a fiscal conservative who generally opposes raising taxes. The decision to veto the postponement of the charitable tax deduction strengthens his credentials as a governor who supports returning the money to taxpayers at a time when he considers running for reelection.
“This deduction was approved by voters 20 years ago and is expected to come into effect when state finances permit, and the combination of high state revenues and the serious needs faced by non-profit organizations. nonprofits and charities require the establishment of this tax deduction, ”Baker wrote in his signing letter.
The Democratic-led legislature needs a two-thirds vote to override Baker’s vetoes.
The overall budget calls on the state to spend 3.2% more than last year, with the increase largely funded by a sharp increase in revenues, bringing in an additional $ 4.2 billion.
Massachusetts residents voted in 2000 to institute a state charitable deduction alongside state income tax cuts. But when a recession hit the following year, lawmakers delayed tax rate cuts and the charitable deduction. The 5% income tax rate finally came into effect in 2020, and the charitable donation deduction was supposed to come into effect in 2021. The legislature delayed this for a year due to economic uncertainty. created by COVID-19. Then, despite higher than expected state tax revenues, they tried to postpone it again this year.
The liberal-leaning Massachusetts Budget and Policy Center questioned whether the charitable deduction should go into effect. In May 2020 guidance note, the organization said the charitable deduction could cost the state $ 300 million a year, with most of the profits going to the wealthiest taxpayers, as it is the taxpayers who have the most money to give to individuals. charities. According to the organization, in 2017, 51% of the financial benefits of the Massachusetts federal charitable tax deduction went to filers earning more than $ 1 million, and those filers enjoyed an average tax benefit of about $ 9,500. The organization suggested exploring ways to make a deduction more progressive to better benefit low- and middle-income tax filers.
The Massachusetts Nonprofit Network – whose members depend on charitable donations – had lobbied for the introduction of the charitable tax deduction. According to the group, in 2020, 32 of the 43 states with an income tax had a tax deduction for charities. The network said the benefit would encourage residents to donate more money to charities at a time when organizations are in desperate need of money to provide services. The organization says the majority of people who give to charity have low to middle income, and estimates that the deduction would be used by 627,000 low and middle income taxpayers each year.
Jim Klocke, CEO of Massachusetts Nonprofit Network, said it was a good time to reinstate the deduction. “Nonprofit organizations depend significantly on individual donations for their programs and services,” Klocke said in a statement. “The state charitable deduction will allow nonprofits to do more to improve people’s lives and help communities thrive. ”
Baker also refused to accept lawmakers’ decisions to eliminate a medical device fee tax credit and a port maintenance tax credit.
A recent report on the effectiveness of all state tax expenditures found that these tax credits were not beneficial. The report states that credit for port maintenance has only been claimed by a small number of companies and no other state offers similar credit. The report states that the medical device credit was also claimed by a small number of large medical device companies, that other states did not have similar credits, and that the credit itself was too small to provide an incentive. significant to businesses.
But Baker argued that the two tax credits “encourage innovation and economic activity in the Commonwealth and should be maintained.” Baker said credits by design only benefit small categories of businesses – those in the shipping and import / export sectors and medical device companies – but fulfill their purpose of helping these industries.
Baker agreed to eliminate another tax credit for energy conservation patents, which he said no taxpayer had ever claimed.
Another section Baker sent back to the Legislature was a complex plan to let some “pass-through” business owners are getting around a 2017 federal tax change that capped the amount they could deduct from their federal taxes for paying state and local taxes. Essentially, the plan would allow these owners to pay state taxes at the corporate level, not the individual level, so they can still deduct the cost of their federal taxes. Baker would structure the plan in such a way that the business owners reap the full benefits. The Senate supported an adjustment that would allow the state to retain $ 90 million in revenue, and that version was incorporated into the final budget. So in both plans, companies would pay lower federal taxes, but under the Senate plan, the state would receive 5% of profits.
Returning this article with an amendment, Baker said he believes all money should be returned to business owners and none should be collected by the state. “Where struggling businesses are still emerging from the pandemic and state revenues are strong, taxpayers should be allowed to take full advantage of this policy, ”he wrote.
Baker enacted a legislative compromise on the film tax credit. After years of controversy over whether the credit primarily benefits film producers and out-of-state actors, lawmakers agreed to make credit permanent without implementing major structural reforms. . the The Massachusetts Production Coalition, which represents film producers, said in a statement that Baker’s signing would preserve thousands of local jobs and economic opportunities. “Massachusetts is now in a position to capture a large portion of the jobs and income created by new productions planned in the post-pandemic entertainment industry,” the coalition said.
Besides the tax changes, Baker vetoed $ 7.9 million in spending, largely because he had concerns about particular items. In some years he has vetoed most local assignments, but given this year’s budget surplus, Baker wrote in his letter of deposit that he left $ 90 million in assignments forward.
Several of the vetoes and amendments were relatively minor – proposing changes to various working groups, finding new sources of funding for an item, or eliminating studies it deems redundant.
Baker has vetoed certain reporting requirements and the creation of an ombudsman to deal with shelter housing complaints. He refused to impose conditions on the Corrections Department demanding that more prisoners be released and placed under house arrest.
Lawmakers wanted to lift the cap on the number of hours a government retiree can work while receiving a public pension from 960 hours to 1,200 hours. Baker offered to let retirees work until 975 hours, but disagreed with the big leap. “An increase of 240 overtime hours per year is a significant policy change and brings the Commonwealth and its municipalities closer to a place where employees continue to work almost full time while receiving a pension, with no corresponding changes to improve practice. current, “Baker wrote in his veto message.
Baker vetoed an article that would prevent the Department of Conservation and Recreation from collecting fees or tolls on a road or parking spot without the approval of the municipality where it is located. He also vetoed provisions that would have eliminated asset testing for beneficiaries of cash assistance programs for elderly residents and families with children.