July 19, 2015

Baker, legislative leaders strike deal to keep business tax break

Facing pressure from business groups over the Legislature's surprise plan to repeal a corporate tax break to pay for an expansion of the earned income tax credit, Gov. Charlie Baker on Friday announced a deal with House and Senate leaders to preserve the deduction and still deliver on tax relief for low-income families.

Just before Baker signed the $38.1 billion budget Friday afternoon for fiscal year 2016, the governor, House Speaker Robert DeLeo and Senate President Stanley Rosenberg said they had an agreement to further delay the implementation of the FAS 109 tax deduction, which would be available to certain publicly traded corporations, for five years and increase the amount of time over which a company can claim the deduction from seven to 30 years.

The deal, according to officials, will create space in the budget to pay for an expansion of the earned income tax credit without repealing the FAS 109 deduction, which has never been implemented since its passage in 2008 as part of a deal with businesses over "combined reporting" tax reforms.

"We all agree that expanding the Earned Income Tax Credit is a critical tool to provide tax relief to over 400,000 low-income individuals and working families and my administration believes in providing a stable, competitive business climate to encourage economic development across the Commonwealth," Baker said in a statement.

House and Senate lawmakers must still vote to approve the deal, which Baker will likely return to the Legislature as a budget amendment. Under the budget Baker intends to sign, the state's earned income tax credit will grow from 15 percent to 23 percent of the federal credit.

"I am proud to stand with Governor Baker and Senate President Rosenberg in supporting the EITC, a vital measure that provides much needed relief to the Commonwealth's families, without imposing any new taxes or fees and overburdening members of the business community," DeLeo said in a statement released by Baker's office.

Said Rosenberg: "This agreement takes an important step in addressing income inequality in our state. As one of the original co-authors of the state Earned Income Tax Credit, I am pleased we have increased the credit by more than 50 percent to help the hard working families of the Commonwealth. I look forward to working with the House and the governor to increase the EITC to our initial target of 30 percent of the federal credit."

Baker last week said he viewed trading the corporate tax deduction for tax relief to low-income workers as a "good thing." In the ensuing days, business lobbyists have pressured the governor to come up with an alternative to repealing the deduction, which they claim will enable businesses to accurately reflect depreciation in the value of assets, for tax purposes.

In a letter Friday to Baker and legislative leaders, the top executives of four major business trade groups wrote: "Thank you again for listening to our concerns and working towards a compromise that all can support."

According to Associated Industries of Massachusetts, the Greater Boston Chamber of Commerce, the Massachusetts Business Roundtable and the Massachusetts Taxpayers Foundation, the agreement "provides certainty for the state's businesses regarding the FAS 109 deduction for several years, and such predictability is critical for economic growth and business development."

Baker last week said he did not view repealing the FAS-109 deduction as a tax increase, while Massachusetts Taxpayers Association President Eileen McAnneny said she believed the repeal was a tax hike.

Governor vetoes $162M from budget

The state budget, which the governor signed Friday, slows spending growth to 3 percent, while investing in local aid, transportation and substance abuse treatment. It also triggers an MBTA fiscal control board.

Baker vetoed $162 million from the $38.1 billion spending plan, drawing serious concerns from the Senate's top Democrat. The vetoes included $5.25 million in University of Massachusetts funding, $200,000 for a state climatologist and $17.6 million in kindergarten expansion grants.

Coming 17 days into the new fiscal year, the budget sets state government on a path to accomplish scores of new directives. But Baker's vetoes and budget amendments as well as a new fiscal 2015 mini-budget represent near-term considerations for the Legislature.
The House, which initiates action on veto overrides and budget amendments, will take time to review Baker's budget moves. The next formal House session is currently scheduled for Wednesday, July 29.

Baker's vetoes included $38 million in spending earmarks authored by lawmakers, setting up a series of potential clashes with legislators who believe they are most attuned to local spending priorities.

The budget contains no new taxes, Baker said at a press conference, while assuming an income tax cut from 5.15 percent to 5.1 percent on Jan. 1. The budget delivers tax relief to low-income workers by expanding the state's earned income tax credit. It uses $600 million in one-time solutions but for the first time in four cycles does not draw from the state's rainy day fund, which state officials are trying to build back up after years of withdrawals.


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