Massachusetts Governor Maura Healey's FY 2024 Budget Recommendation

PolicyEngine estimates the distributional impact of two provisions and the household impact of four provisions.

See how the proposal would affect your household.

On Monday, Massachusetts Governor Maura Healey introduced her fiscal year 2024 budget recommendation, which included five main proposals:

1. Replacing the existing dependent and dependent care credits with a Child & Family Credit of $600 per qualifying dependent

2. Reducing estate taxes

3. Increasing the cap on the renter’s tax deduction from $3,000 to $4,000

4. Doubling the maximum Senior Circuit Breaker Credit

5. Reducing the rate on short term capital gains from 12% to 5%

PolicyEngine models the personal income tax code of Massachusetts, including each of the provisions Healey seeks to modify, except the estate tax. Our microsimulation model also supports population-wide impacts of two of the provisions: the Child & Family Credit and the capital gains reform. PolicyEngine estimates that these two provisions would together benefit 38% of the Massachusetts population and reduce the Gini index of income inequality by 0.2%. Our cost projections fall 15% below the state’s, though we can attribute at least some of this divergence to inaccuracies in the Census Bureau’s Current Population Survey.

This post describes these provisions, examines the impact on three hypothetical households, and shows our microsimulation model’s distributional impacts for the available provisions.

A report from John Caljouw, the Massachusetts Finance Director, describes and costs the core provisions of Governor Healey’s proposal.

Here we detail each provision.

See the impact of the Child & Family Credit on your household and on Massachusetts.

Currently, Massachusetts families can claim one of the following two refundable tax credits:

1. Dependent Tax Credit, which provides $180 to children up to age 11

2. Dependent Care Tax Credit, which provides up to $240 per child, also up to two children, up to age 12 and phasing in with the lesser of the filer head and spouse’s earnings (similar to the federal Child and Dependent Care Credit)

As she did in her gubernatorial campaign last year, Governor Healey proposes to replace these with a Child & Family Credit of $600 per qualifying dependent. The Child & Family Tax Credit is structured as the Dependent Tax Credit, except that it increases the amount from $180 to $600, increases the age limit from 11 to 12, and removes the child cap.

Governor Healey proposes eliminating any Estate Taxes for estates with a value of less than $3,000,000 and providing a non-refundable Estate Tax credit of up to $182,000 for estates valued above $3,000,000. PolicyEngine does not model estate taxes.

See the impact of the renter tax deduction increase on your household.

Massachusetts provides a tax deduction of up to 50% of filers’ yearly rent, capped at $3,000. Governor Healey proposes raising this to $4,000.

See the impact of the Senior Circuit Breaker Credit increase on your household.

Massachusetts provides a Senior Circuit Breaker Tax Credit, which reduces tax liabilities for filers aged 65 or older, depending on their income, rent, and property tax, in particular when rent and property tax exceed 10% of one’s income. Governor Healey proposes doubling the maximum credit from $1,200 to $2,400.

See the impact of the short-term capital gains cut on your household and on Massachusetts.

Massachusetts currently taxes most income at 5%, except income exceeding $1 million (9%) and short term capital gains (12%). The federal government and two other states also tax capital gains differently depending on whether the assets have been held for a year. Governor Healey proposes equalizing short and long term capital gains rates by reducing the short term rate from 12% to 5%.

To illustrate the impact of the four policies, we show how they would affect three hypothetical households: a family of four with childcare expenses, single renter with short-term capital gains, and senior homeowning couple. In each case, we show the impact to net income and marginal tax rates as the household head’s earnings vary.

Consider this family of five:

• Spouse earns $20,000 per year, one infant, one six-year-old child, and one ten-year-old child

• Renting in Norfolk County, and paying $3,600 per month, Zillow’s estimated median for three-bedroom homes in Massachusetts

• Paying the median center-based infant care cost in Norfolk County, which the US Department of Labor estimates at $26,409 per year in 2022 (the highest in Massachusetts)

• No childcare costs for the six- and ten-year-old children

Governor Healey’s proposal would provide them a net benefit if they earn above $8,000, and $50 if they earn at least $9,500. This is the earnings range over which they would pay income taxes, and where the renter tax deduction begins to reduce their taxable income.

Overall, this family would benefit mainly from the consolidation of the Dependent Credit and the Dependent Care Credit into the Family & Child Tax Credit. Current law entitles them to a maximum credit of $240 per child, up to a max of two children, giving them $480. Governor Healey’s proposal would make three of their children eligible for a $600 credit, producing a total credit of $1,800. Compared to current law, Governor Healey’s proposed Renters Deduction increase would also reduce their income tax liability by $50.

Consider a single person paying $2,050 per month in rent, Zillow’s estimated median for studios in Massachusetts.

Governor Healey’s proposal would provide them a net benefit if they earn above $8,000, and $50 if they earn at least $9,500. This is the earnings range over which they would pay income taxes, and where the renter tax deduction begins to reduce their taxable income.

The reform lowers their marginal tax rate between $8,000 and $9,500 earnings by between zero and five percentage points. The cuts to the short-term capital gain rate are responsible for the majority of the benefit in this case, saving this individual $8,092.

Finally, consider a couple, each 70 years old and owning a home.

Each receives $21,348 per year in Social Security retirement benefits, the average according to the Social Security Administration.

Their home is worth $545,865, Zillow’s estimated median for the state, and they pay a 1.12% property tax rate, SmartAsset’s estimated average for the state. That is, they pay $6,114 per year in property taxes.

Governor Healey’s proposal would provide them a $784 net gain if they have no earnings, falling to zero if they earn at least $8,000.

This is the income range over which the reform raises the Senior Circuit Breaker Credit.

The reform increases the filer’s marginal tax rate by ten percentage points in this phase-out range.

PolicyEngine’s microsimulation model pairs our tax-benefit rules engine with the Current Population Survey to estimate the aggregate impact of policy reforms. As the CPS does not contain information about households’ rent, property taxes, or inheritance, we estimate only the impact of the Child & Family Credit and the capital gains reform.

Compared to the Finance Director’s report, PolicyEngine projects lower costs of each provision: 11% lower for the Child & Family Credit and 35% lower for the capital gains cut. We will release a more accurate version of the CPS this year to address under-reporting of income and benefits.

The Child & Family Credit would reduce the Gini index of income inequality by 0.2%, while the capital gains cut would increase the Gini index by less than 0.1%.

Together, the two provisions PolicyEngine models population impacts for — the Child & Family Credit and the short-term capital gains cut — would increase the average household’s net income by $173, disproportionately among higher income households.

These provisions would raise the average household’s net income by 0.2%, disproportionately among lower income deciles.

38% of Massachusettsans live in households that would benefit from the two provisions. A larger share of higher-income households would gain, while a larger share of lower-income households would gain at least 5% of net income (dark green). The provisions do not leave any households worse off than baseline policy.

PolicyEngine projects no poverty impact of the Child & Family Credit and short-term capital gains cut, while deep poverty (the population share in households with resources below half their poverty line) would fall 1.6%.

PolicyEngine’s poverty impacts in small states are noisy, due to using a single year’s Current Population Survey.

The two provisions would reduce each measure of income inequality we report.

While the reforms alter marginal tax rates, we do not project any impact on cliffs. Like poverty estimates, cliffs are a dichotomous household outcome that can be noisy in small states.

Governor Healey’s FY 2024 Budget Recommendation proposes several significant policy changes that would impact households in Massachusetts in diverse ways. PolicyEngine’s microsimulation model provides valuable insight into the potential impact of these proposals on different segments of the population. While further analysis may be required to fully understand the impact of these policies on the residents of Massachusetts, PolicyEngine’s ability to enable detailed analysis of policies is a valuable tool for policymakers in designing and evaluating policy proposals. As Massachusetts moves forward with its budget process, PolicyEngine’s analysis can provide valuable information to policymakers and support evidence-based decision-making.

max ghenis
PolicyEngine's Co-founder and CEO



nicholas rodelo
Researcher at PolicyEngine

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