Calls to Eliminate Massachusetts Estate Tax
The main change being sought is the removal of the state estate tax, which applies when someone passes away leaving over $2 million in assets to their heirs. Additionally, the Chamber is advocating for reductions in business taxes and short-term capital gains tax, with references to data indicating Massachusetts ranks poorly in tax policy.
“We consistently rank as a ‘high cost of doing business’ state,” Rooney mentioned in an interview. “These taxes contribute to that.”
This year, as part of a broader tax reform initiative, lawmakers increased the inheritance tax threshold from $1 million to $2 million, also eliminating what was known as the “inheritance tax.” There’s a notable point here: if the limit is surpassed, the entire estate gets taxed. (It’s worth mentioning that Congress set a $5 million threshold.) Presently, only estates exceeding $2 million face state taxes, which can range between 7 percent and 16 percent, depending on estate size.
Yet, Massachusetts stands out as one of just 12 states with an inheritance tax, and Oregon and Rhode Island are the only ones with lower exemption amounts. In his correspondence, Rooney indicated that the state is out of sync with neighboring regions like New York, Maine, and Connecticut, as well as competitors such as Florida, North Carolina, and Texas, which have eliminated estate taxes entirely.
Many small and medium-sized, often family-owned businesses have found that the inheritance tax acts as “another barrier to success,” especially as they navigate challenges posed by the pandemic and recent tariffs.
“It feels like a penalty for trying to save after taxes and leave something for your kids,” Rooney expressed. “This isn’t just an issue for the wealthy anymore.”
The exact financial stakes of this matter remain vague. The Chamber didn’t specify figures in its letter, and annual amounts tend to fluctuate. For the recent fiscal year, net collections from the inheritance tax hit $740 million, according to state Department of Revenue records.
Tax reductions may be tough to secure in Beacon Hill given the budgetary pressures the state Legislature anticipates. This year’s total tax collection saw almost no increase compared to the previous quarter, falling slightly short of projections. Meanwhile, state budget planners are preparing for significant cuts, particularly in federal aid for programs like Medicaid.
Moreover, any proposed alterations to state taxes are likely to encounter pushback from progressive groups like the Massachusetts Budget and Policy Center, a local think tank.
“We’ll face substantial cuts because of federal actions impacting the state budget,” said Phineas Baxandall, the policy director there. “It’s unclear just how deep the revenue shortfall will be. Rather than limiting our investment capacity in priorities, we should consider doubling down on them.”
Baxandall also highlighted that the inheritance tax serves as a tool to bridge the wealth gap in Massachusetts. He pointed out that a new income tax aimed at high earners has outperformed expectations since its introduction in 2023, suggesting that fears of a mass exodus have not materialized.
“The lesson here is that affluent families tend to favor living in places that invest in the future,” Baxandall remarked. “Removing substantial taxes from those most capable of contributing is simply misguided.”
