- Associated Press - Tuesday, May 19, 2015

BOSTON (AP) - The Massachusetts Senate waded into the debate over tax policy on Tuesday by voting to freeze the state income tax rate at 5.15 percent while gradually increasing the earned income tax credit for low-income working families.

The measure, backed by Democratic leaders, was approved 29-11 during the first day of Senate debate on the $38 billion budget for the fiscal year starting July 1. It must still win the backing of the House, which did not address tax changes when it passed its version of the spending plan last month.

The Senate amendment expands the state’s earned income tax credit by 50 percent over the next three years, from the current 15 percent to 22.5 percent of the federal earned income tax credit. When fully implemented in 2017, backers say it will save the average low-wage earner, including thousands of single parents, about $470 a year.

To cover the anticipated $145 million cost of the expanded tax credit, the Senate froze the state’s income tax rate at the current 5.15 percent, rather than allow it to drop incrementally to 5 percent over the next few years. Debate over the tax rate has churned on Beacon Hill since 2000, when voters approved a ballot question to cut the then-5.95 tax rate to 5 percent.

The Legislature later stepped in and set the rate at 5.3 percent, but with triggers that would allow the rate to fall incrementally until it settled at 5 percent.

Senate Democrats argued that under the state’s flat tax system, the income tax cuts overwhelmingly favored wealthier individuals over working families. They also said every taxpayer would enjoy some tax relief on their 2015 taxes since their proposal also calls for increasing personal exemptions.

“Fourteen years ago the Red Sox were still talking about the Curse of the Bambino,” said Sen. Benjamin Downing, a Pittsfield Democrat referring to the years passed since the ballot question. “We honored the will of the voters by continuing to make sure we have the same amount of total tax cuts. It’s not a matter of if, it’s a matter of how, and we judge that this way how is a better way for taxpayers.”

Before approving the measure, the Senate rejected a proposal from Republican leader Bruce Tarr that called for doubling the state’s earned income tax credit, but with no offsetting freeze in the income tax rate.

Tarr said the Democratic amendment would thwart the will of voters.

“If we allow this to go forward - and I certainly hope we won’t - then we will have increased taxes beyond the 5 percent into perpetuity in order to pay for something we could have paid for with available funds,” said the Gloucester Republican.

It was not immediately clear if Gov. Charlie Baker would accept the Senate amendment. The Republican has also called for doubling the tax credit but has proposed to pay for it by eliminating the state’s 25 percent tax credit for filmmaking.

“The governor favors reducing the tax burden on all Massachusetts families and believes the best way to pay for his plan to boost support for low income workers is by phasing out subsidies for Hollywood movie producers,” said Elizabeth Guyton, a Baker spokeswoman.

The Senate voted Tuesday to study the film tax credit to see if there’s a way to target more of the program’s benefits to Massachusetts residents and businesses.

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