As attention focuses on the merits of the administration’s $1.9 billion tax plan versus the Legislature’s more modest package, I am troubled by the dearth of discussion about Gov. Deval Patrick’s proposed major structural changes to the state tax code. I have been a CPA specializing in tax for nearly three decades, so while evaluating this proposal, my frame of reference goes well beyond my time in the Legislature. In the governor’s quest to raise nearly $2 billion in revenue while simultaneously restructuring the tax code, I fear we will be left with a tax code that is flat as a pancake and devoid of deductions that help those most in need.
Deductions and exemptions
The governor’s proposal eliminates a long list of deductions that families rely upon. Not only do these deductions lend a level of progressivity (in both the tax and political sense) to the tax code, but they also encourage people to do important things that improve the lives of so many in the commonwealth. Modest deductions for those who adopt children, become foster families, use day care in order to work, go to college and send children to college, have children under 12 — are all being eliminated. The list of 44 deductions is quite comprehensive and also includes lead paint removal, septic systems, commuters, renewable energy, many employer-provided benefits, scholarships and fellowships. In addition to incentivizing important activities, these deductions also provide a small measure of assistance to those who need it most. Why discard this long list of good ideas?
The personal residence deduction
As the beleaguered real estate market is showing signs of recovery, now is not the time to eliminate the partial exemption on the profit from the sale of personal residences that matches the federal exemption. Removing this deduction will hit retirees particularly hard, since gains in the real estate market tend to be with those who have held on to their houses for a very long time.