Massachusetts’s Competitive Tax Credits: A Step Forward for the State and Residents

Abby Ling

Earlier this month, legislators in Massachusetts advanced tax policy legislation that increased the state Child and Dependent Care Tax Credit (CDCTC) and expanded the state Earned Income Tax Credit (EITC) to better support children and families.

On October 4, Gov. Maura Healey (D) signed into law the state’s first tax cuts in almost two decades. The new law increases the state CDCTC from $180 to $310 per dependent for fiscal year 2023, then to $440 per dependent for 2024 and beyond, making it one of the most generous tax credits of its kind in the nation. The proposal also expands the state EITC from 30% to 40% of the federal rate and is anticipated to reach more than 400,000 low-wage workers across the state.

The final proposal arrived at the governor’s desk after an extended debate between the state Senate and House after nearly two years of negotiations.

The Debate: House vs. Senate

At the start of the 2023 legislative session, the Massachusetts Legislature was faced with two tax packages aimed at replacing two smaller tax credits – the Child Care Expenses Credit and Dependent Member(s) of Household Credit – with a larger, refundable state Child and Family Tax Credit (CFTC). The Senate proposed a $310 credit per eligible dependent that would not be indexed to inflation. The House proposed a $600 credit per eligible dependent phased in over three years that would be indexed to inflation, ensuring the credit keeps pace with rising costs.

In addition to being backed by the Healey-Driscoll Administration, over a hundred community-serving organizations and institutions supported the House’s proposal of the $600 state CDCTC.

“Passing the House’s more robust Child and Family Tax Credit will better support families’ ability to afford essentials for the growth and development of their children,” shared Stephanie Ettinger de Cuba, Executive Director of Children’s HealthWatch and Research Associate Professor at Boston University School of Public Health. “Our research found that the federal Child Tax Credit expansion helped families with young children catch up on rent, improved food security, protected parents’ health, and supported mothers’ mental health.”

Read the letter signed by the 107 Massachusetts organizations that helped propel the expansion of the state CDCTC and EITC here.

What’s Next?

The new legislation will serve low- and moderate-income households, putting significant dollars into the pockets of hundreds of thousands of people throughout the Commonwealth. However, the House-Senate compromise fell short of the highly favored and more generous initial House proposal for the state CDCTC. Under recently enacted law, the state CDCTC will reach up to $440 per dependent without indexing to inflation. The House proposal would have increased the tax credit to $600 per dependent and ensured that the value remained competitive in the face of an unstable economy. Without indexing, the tax credit’s efficacy will erode.

“We commend [the conference committee] for taking important steps to improve affordability for low- and middle-income households in Massachusetts,” said the Massachusetts Budget & Policy Center (MassBudget) in response to the tax relief package’s details. “At the same time, our state fails to move toward racial and economic equity when we give away hundreds of millions of dollars to the richest families and large, profitable corporations.”

The new tax cut package is a move in the right direction, but there is still substantial room for Massachusetts to pursue policies that would advance tax code equity and provide long-term support for workers and families.