House Speaker Salvatore F. DiMasi sketched out a set of budget priorities yesterday that would deeply cut the state corporate tax rate over the next three years. At the same time, he extended a peace offering to Governor Deval Patrick by embracing one of the governor's key initiatives, tightening corporate tax laws to make it harder for companies to avoid state taxes.
Laying out the broad outlines of his plan before legislative budget hearings even begin, DiMasi proposed cutting the state's corporate income tax from 9.5 percent to 7 percent, while reversing his stance against closing what Patrick has described as corporate tax loopholes.
"He should take this as a victory; they should be very happy," DiMasi said of Patrick and his staff.
It was DiMasi's most detailed response to the budget Patrick submitted to the Legislature three weeks ago. Reducing the state's corporate tax rate to 7 percent would drop Massachusetts from the fourth-highest rate in the country to the middle of the pack.
Patrick stopped well short of declaring victory over DiMasi's change of heart on corporate-tax rule-tightening. He called the speaker's plan "a step toward tax fairness," but also said he would continue pushing the Legislature to act on other initiatives.
"What we need, what we owe the people of Massachusetts, is engaging on these issues," Patrick told reporters. "This is just the beginning."
Nonetheless, yesterday's movement by DiMasi appeared to mark progress for Patrick and DiMasi, both Democrats who have clashed on a variety of issues despite their shared party affiliation.
With DiMasi sitting behind him, Patrick thundered in his State of the State address last month about the "cost of inaction." Since then, there has been more activity.
A $1 billion life sciences bill, which has been a centerpiece of Patrick's legislative agenda, is heading toward a vote within the next week, and casino hearings are expected to begin soon. Last week the House and Senate also quickly approved Patrick's legislation to restructure the administration of state education programs.
On the budget, Patrick and lawmakers are grappling with a projected $1.3 billion gap. As expected, DiMasi, who is skeptical about Patrick's plan to license three resort casinos, yesterday rejected the governor's proposal to include $124 million in casino licensing revenues.
Instead, the speaker proposed raising $152 million by increasing the state's cigarette tax by $1 a pack, which would bring the cigarette tax to $2.51 and give Massachusetts the second highest cigarette tax in the country behind New Jersey. The money would be spent on escalating costs that are part of the state's mandatory health insurance law.
Although he called it a "balanced budget proposal," DiMasi outlined his plan in only the broadest strokes yesterday and said it will be filled out in further detail as the House begins budget hearings tomorrow.
DiMasi also is planning to ask the House to vote today to freeze unemployment insurance rates, a move that would leave $150 million in the hands of businesses each year, a notion that was applauded by the corporate community but is deeply unpopular among labor unions. Union leaders were on the phones most of yesterday afternoon - and plan to be in the halls of the State House today - trying to persuade legislators not to freeze the rate.
"We will tell them it's a labor vote, and we'll mark them accordingly," said Tim Sullivan, spokesman for the Massachusetts AFL-CIO. "It is categorically a bad idea, especially with a recession. It's all a grand scheme by the corporations."
Patrick, who has sought crucial backing of the unions on his casino legislation, did not appear to be siding with the unions on this issue. Patrick opened the door to such a plan when he unveiled his budget last month.
"It's on the table," he said yesterday. "I'm open to it."
Senate President Therese Murray declined requests for comment on DiMasi's proposals yesterday, but said she is ready to work on the budget.
Supporting corporate tax changes reflected a big shift for DiMasi, who has been the primary roadblock for such proposals. He fought back the idea last year by calling it a "catalyst to reduce jobs." But he later agreed with Patrick to establish a 15-member tax commission to further study the state's corporate tax structure. In December, the commission urged that the tax law be made more restrictive, but only if corporate taxes are reduced.
When Patrick coupled the tighter rules with a plan to reduce corporate taxes last month in the spirit of compromise, some in the House said they were willing to sign on, but DiMasi was noncommittal.
The speaker's move yesterday, considerably more aggressive in cutting taxes than Patrick's, was the first concrete indication that he was ready to deal.
"I wouldn't say I changed my position," DiMasi said. "I've always said that all of this has to be balanced with the revenues needed to balance our budget. There's a balancing test here. Obviously this is a very difficult fiscal year."
Patrick's budget proposal would reduce the rate from 9.5 percent to 9.1 percent in 2010. In 2011, it would drop to 8.7 percent and to 8.3 percent in 2012.
DiMasi's proposal is more favorable to companies, going from 9.5 percent to 8.5 percent starting a year earlier, in 2009; in 2010, it would drop to 7.5 percent, and then to 7 percent in 2011.
Overall, DiMasi's plan would mean that businesses would pay about $204 million more next year, but by 2011 would be back to what they pay now. Because Patrick's plan does not lower the tax rate as quickly or dramatically, businesses would still end up paying $280 million more once his plan is fully implemented in 2012.
Business leaders who reacted negatively to Patrick's plan last month reacted more favorably to DiMasi's. "There are some very positive things in what the speaker has put forward," said Paul Guzzi, president of the Greater Boston Chamber of Commerce.
"It's an artful compromise," said Michael J. Widmer, president of the Massachusetts Taxpayers Association. "It allows them both to accurately claim success."
DiMasi said he plans to use $427 million from the state's rainy day fund, compared with the $369 million that Patrick wants to use. Without indicating which areas he would target, DiMasi proposed cutting state spending by $100 million.
Matt Viser can be reached at firstname.lastname@example.org.