Baker Sees Law of 1986 Launching $2.5 Billion in Refunds


With just three days left in this year’s caucuses, Beacon Hill Democrats may need to take their long-discussed $1 billion tax plan back to the drawing board as it appears the 1980s law has been largely watered down in Beacon. Hill’s recall will begin with fiscal year 2022, resulting in nearly $3 billion being returned to taxpayers.

With more information expected from the budget year that ended June 30, Democrats in the Legislature have been targeting about $500 million in permanent annual tax cuts and $500 million in one-time, $250 payments to middle-income earners. But the idea that a 1986 voter law that puts a cap on state tax increases and calls for more money to be refunded to the roughly 3.8 million people who paid taxes last year could be revived again is the governor’s confidence. that Bay Staters will finally get a big relief.

“Based on the performance of our economy and the collection of taxes in the last financial year, we believe that there will be a significant benefit to taxpayers, according to the existing state laws, sometime at the end of this year,” Gov. Charlie Baker he said Thursday morning. He added, “We think it’s probably north of $2.5 billion that would be a tax break for the people of Massachusetts.”

On Thursday, Baker’s budget office said its estimate is that $2.965 billion will be returned to taxpayers under the law known as Chapter 62F. If this number holds, it will result in taxpayers getting a refund of about 7 percent of the taxes they paid in 2021, the Executive Office of Administration and Finance said. A person with $75,000 in taxable income can expect a refund of about $250, officials said.

Under a tax referendum sponsored by Citizens for Limited Taxation and approved by 54 percent of voters in 1986, if revenue grows more than wages and salaries grow, the excess money must be returned to taxpayers. If the auditor finds that the state has collected more tax money than that amount, the Department of Revenue “will take all necessary steps to issue a tax credit equal to the amount of that amount,” the auditor’s office said.

The final determination of state tax returns is due from Auditor Suzanne Bump’s office by Sept.

CommonWealth magazine was the first to declare on the possibility that additional interest may be triggered.

The CLT, which pushed the 1986 law with the Massachusetts High Technology Council, said Thursday that the idea that more money could be introduced for the first time in 35 years is “exciting.”

“I’m sure Barbara Anderson is up there looking down and throwing her fist up in the sky,” Chip Ford, CLT Executive Director, said Thursday, referring to the CLT leader who was one of the authors of the Proposition. 2 1/2 is a strong opponent of tax-raising efforts in the Massachusetts Legislature.

The Mass. The Fiscal Alliance also praised Anderson and the CLT on Thursday, saying the deal “is so strong that it continues to provide protections for Massachusetts taxpayers for four decades.”

“Everything is on the table”

The possibility seemed to unsettle Democrats, as what would happen to taxpayers was not a topic of discussion during the long budget season and when the budget deficit was high. None of the members of the Legislature were in office in 1986. The Speaker of the House, Rep. Kevin Honan, was elected in 1986 and took office in 1987, and the Dean of the Senate, Sen. Marc Pacheco, was first elected in 1988.

Ways and Means Chairmen Sen. Michael Rodrigues and Rep. Aaron Michlewitz told reporters Thursday afternoon that they are still trying to figure out what the recent relief will mean for their tax plan, which has been suspended in talks on the federal government. bill that should be completed by the end of the week.

“I think it puts everything back on the table to discuss exactly what we can or can’t do going forward. And again, where [Rodrigues’] to say that when we create this package, we did not expect, then the trigger will start working. We didn’t have the revenue numbers, we didn’t know what the wage growth was going to be,” Michlewitz said of the House and Senate tax package announced on July 7. “So I don’t think we had it. number that can happen when we make those decisions. So obviously, everything should be put back on the table for discussion. … We have to reassess exactly what we can afford in the future.”

The Ways and Means chairman did not prevent the Legislature from amending the 1986 legislation to remove the relief that had just come to the table.

“We are not here to make decisions,” Rodrigues said when asked if changes to 62F were being considered. “Remember, the administration just found out and informed us about this a few days ago. And we had to understand, we’re still trying to understand, and I’m working with some foreign people who are familiar with taxes… How did COVID affect this? The fact that, you know, we know that billions of dollars went into the contract of COVID treatment, and unemployment insurance premiums etc. How did this affect the fact that there was no COVID epidemic in 1986 when this law was put on the books?”

Michelwitz added, “Everything is on the table in the negotiations here. You know, in the last few days here.”

While there are always competing interests when a state has an inordinate amount of money on its hands, Baker said the state’s financial situation means more taxes and the Legislature’s $1 billion in tax reform and direct payments are likely to happen.

“The tax issues that are pending in the Legislature are cheap according to this. I mean, you are talking about the tax year last year in which the tax revenue increased by 20 percent, which came after the tax increase in the previous year which increased by 15 percent,” said the governor . . “I mean, this is an incredible increase in tax revenue, which is in some ways exactly what this was created for. [to do]to ensure that the people of Massachusetts participate in the storm.”

An official of the Baker organization argued on Thursday that the plan of the Legislature to control taxes to a certain group of taxpayers and the idea of ​​returning the money that the government got are two different ideas and one should not prevent the other.

Baker also referred to the 2023 budget he signed Thursday morning, which includes spending increases that he said are “affordable.” He said the state has “a lot of room there” and believes there will still be enough left over to add more money to the MBTA and other things in the final 2022 budget bill.

“So yeah,” Baker said, “we think it’s cheap.”

In mid-June, the last month of the 2022 fiscal year, Massachusetts collected $39.199 billion in 2022 taxes, enough that the Massachusetts Taxpayers Foundation estimated the remaining balance was close to $3.5 billion. The DOR has not yet released the final figures for the fiscal year, or the figures for the full month of June, which is usually the second month of receipts. The managing director said on Thursday that the month of June will be the biggest month.

But Baker’s budget office said Thursday that the state was $3.5 billion over budget through June, while $2.1 billion was still available after the approved transfer of excess funds. On top of that, officials said, is $3.1 billion in “tax” or gross collections that occurred between January and May. Removing the $3 billion in overpayments or refunds would leave $2.7 billion, the administration said.

After accounting for the $1.5 billion in state funding that is expected to be included in the economic development bill and other anticipated expenses, a senior executive says between $400 million and $500 million could be left in the final budget.

How It Could Work

The the law says that the auditor’s determination that the government has taken money in excess of the cap “will result in a debt equal to the amount of that amount” and that the debt “will be applied to the current tax of the taxpayers at that time. taxes equal to the taxes that all taxpayers paid in the previous year. “

But the law was only introduced in 1987, when collections topped $29.22 million and taxpayers took in about $17 million, and budget chief Michael Heffernan said his team was working to clarify how the money — or refunds, as Baker repeatedly referred to them — would work.

“We are looking for a faster and more efficient way to bring the money to the taxpayers,” the secretary of the administration of finance and finance.

It’s a point Michelwitz would also like to make clear.

“You just said that there is debt [or] return. I don’t think we have a complete answer to that, “said a reporter when asked about repayment or debt repayment under 62F. “I think the administration will also give a mixed message in this discussion. So a full review and a good understanding of this will be necessary to determine if we need to move forward with any discussions regarding 62F. “

The only time a surplus was hit, in 1987, $29.22 million was given to taxpayers by adding to the 1987 Massachusetts tax line “in which each taxpayer may enter his or her individual assessment portion. of the $29,221,675 debt,” the auditor’s office said.

From fiscal year 1987 to fiscal year 2021, total federal tax revenues increased by nearly 328 percent, from $8.1 billion to more than $34.65 billion. The state’s “authorized” tax revenue — or the amount that can be collected without a hit — rose 356 percent during the same period, from $8.07 billion to about $36.79 billion.

Every year from fiscal year 1988 to Fiscal Year 2021the auditor has determined that the total income of the state was less than the statutory income of the state and, therefore, no income of tax is required under 62F.