Debate over House 4975 centers on phasing federal tax changes vs permanent decoupling

The Joint Committee on Revenue heard hours of testimony on House 4975 on Monday as the administration urged a phased response to sweeping federal tax changes while advocates pushed for permanent decoupling.

ANF Secretary Matt Gorowitz told lawmakers the federal "OB3" package contained more than 100 tax provisions and that the Department of Revenue estimates five of the costliest would cut FY26 revenue by $442,000,000 if the Commonwealth automatically conformed. "If left untouched, the five costliest provisions of the OB3 legislation will reduce our FY '26 revenue by $442,000,000," Gorowitz said, framing the administration's bill as a fiscal safeguard aimed at preventing midyear budget shocks.

The governor's bill would phase in certain provisions, beginning with the research-and-experimental (R&E) deduction in tax year 2026, which the administration estimates would provide roughly $100,000,000 in additional tax relief to businesses in the first year. The proposal would also expand the pass-through entity (PTE) excise to income subject to the state's 4% surtax and adopt a Maryland-style automatic delay: any federal change projected to affect state revenue by more than $20,000,000 would be delayed for one year unless the Legislature acts.

Administration officials said the phased approach balances two goals: avoid immediate harm to the FY26 budget while preserving tax changes important to parts of the Massachusetts economy, especially research-intensive industries. Gorowitz said the administration conducted "extensive stakeholder outreach" with both business and labor groups before filing the bill.

Advocates and labor groups pressed for a different path. Phineas Baxendall of the Massachusetts Budget and Policy Center urged the Commonwealth to opt out entirely of the five costliest corporate changes, saying total opt-out would preserve an estimated $278,000,000 in FY27. Jonathan Cohn of Progressive Massachusetts said delay is insufficient and called for permanent rejection of the federal corporate tax cuts: "We shouldn't be adopting these progressive corporate tax cuts at all." Don Griswold of the Center on Budget and Policy Priorities cited past revenue losses from rushed conformity and urged stronger default protections if the Legislature fails to act during any delay period.

Business and tax-professional groups stressed operational concerns. Zach Donoff, president and CEO of the Massachusetts Society of CPAs, told the committee that filing timelines (business returns due March 15, individuals April 15) and the outsized role of research-and-development activity in Massachusetts make clarity and predictability critical for taxpayers.

The bill drew issue-specific objections. Unite Here Local 26 asked lawmakers to strike sections that would raise the slot-machine reporting threshold from $1,200 to $2,000, arguing that the current $1,200 machine lock gives attendants a vital opportunity to intervene on problem gambling and preserves jobs and tip income. "The $1,200 threshold is a sensible guardrail in problem gaming," a union witness said.

Advocates for paid family and medical leave (PFML) described a separate technical change in the bill and related administrative steps that could affect tax treatment of benefits. Stephanie Heron Rice of Greater Boston Legal Services explained new IRS guidance on PFML and said the administration's proposed adjustment to contribution splits, combined with administrative rebalancing at the Department of Family and Medical Leave, could make medical-leave benefits tax free for all workers without increasing costs to small employers.

Union leaders and public-education advocates warned that adopting the federal corporate tax changes would force cuts to schools, human services and hospital budgets. Speakers from the Massachusetts Teachers Association, AFT Massachusetts, SEIU and the Building Trades argued the state should refuse the federal changes permanently rather than phase them in.

The committee took testimony from a broad set of stakeholders and did not take a vote at Monday's hearing. Lawmakers and administration staff indicated they would continue to weigh fiscal estimates, stakeholder input and operational timelines as the Legislature considers whether to adopt the phased approach, pursue full decoupling, or pursue other amendments.