Tax Deduction On Bank Savings Interest Appears Doomed

Repeal Included in Gov. Healey’s Budget

May 21, 2024….The last proposal standing between taxpayers and the elimination of the deduction on interest from savings in Massachusetts banks is a Sen. Bruce Tarr amendment to the Senate budget.

The Senate Ways and Means Committee confirmed Tuesday to the News Service that an outside section of the committee’s fiscal 2025 budget bill repeals the tax exemption and, in doing so, would generate $4 million in new state revenue.

The repeal was included in Gov. Maura Healey’s budget and the House budget, according to Senate Ways and Means, where spokesman Sean Fitzgerald said the proposal does not represent a new tax.   

The spokesman did not explain why the panel supports the change. Similarly, Healey’s budget bill filed in January includes a single line explaining that she plans to repeal the tax deduction but doesn’t offer a rationale for the change. 

Tarr’s amendment (117) would strike outside section 46 of the Ways and Means budget bill.

“My concern is this is a deduction that could be important to folks. It is not utilized to a tremendous extent right now, but I think when we take away options it’s not a good idea for taxpayers to be able to save some money, particularly with regard to Massachusetts banks. These are banks that we need, and unlike some of the larger, more national and international banks, these are ones that are oftentimes local community anchor. And we want to just make sure that that option continues to be there,” the Senate minority leader told the News Service late Tuesday afternoon.

Senate Ways and Means Chairman Michael Rodrigues, who spoke with reporters alongside Tarr, said a bipartisan group recommended that Massachusetts repeal the deduction.

“We have established a bipartisan Tax Expenditure Review Commission that looks at all of our tax expenditures, which are primarily deductions and credits, because oftentimes we put a deduction or credit on the books and it stays there in perpetuity and does not get looked at,” the Westport Democrat said. “Times change, business models change, and this was one tax expenditure that the TERC commission recommended that we rescind, and it provides about $4 million a year in revenue for the commonwealth.”

Paul Craney of the conservative Mass. Fiscal Alliance called the governor’s proposal a “bad policy idea” and said she “should give an explanation for why she’s taking away this benefit to the taxpayers.”