Fact Check: 10 Reasons to Discount ITEP’s Analysis—Once Again 

Context
Pioneer Institute has previously gone toe-to-toe with the Institute on Taxation and Economic Policy (ITEP) over flawed and misleading tax analyses—notably ITEP’s advocacy for the 2022 surtax on high earners as good for the Bay State economy. That argument that has proven to hold about as much water as the leaky thesis from Cornell University Professor Cristobal Young that that high-income earners would not relocate in response to the imposition of a new 4 percent surtax. Subsequent data on jobs and outmigration—e.g., Massachusetts being one of just four states to lose jobs since 2020 and yesterday’s report in the Boston Globe, “Exodus from Massachusetts continues…,” which noted that Massachusetts lost 33,000 Massachusetts residents to relocation. 

With its new five-paragraph report on the personal income tax ballot proposal, ITEP has reached a nadir in its credibility. The brief intends to persuade you that the proposed cut in the personal income tax will benefit only the wealthy, and it is, par for the course, riddled with analytical errors and omissions.  

This fact check is intended to inform media and policymakers that the analysis being circulated is not a reliable basis for coverage or decision-making. 

1. The $5 billion headline conflicts with multiple independent revenue estimates: ITEP asserts that reducing the personal income tax rate from 5 percent to 4 percent would cost Massachusetts $5 billion annually. Yet two separate analyses—including one highlighted by Pioneer Institute and the other by the Mass Opportunity Alliance—estimate the annual revenue impact closer to $2 billion, with lower costs during a phased-in period. ITEP does not reconcile its estimate with these competing analyses, nor does it explain why its projection is more than double other public estimates. Hint: It’s because they are doing simple division rather than looking at empirical examples or providing a dynamic analysis.  
2. ITEP focuses on just 7 percent of the proposal while citing 100 percent of the cost: ITEP’s own figures show that only $347 million of the claimed $5 billion impact—about 7 percent or 1/14th in their telling—comes from the reduction in the capital gains rate. Yet the analysis centers almost entirely on capital gains, including its distributional table and headline framing. By spotlighting this narrow slice while invoking the full fiscal impact, ITEP invites readers to draw conclusions about the entire proposal based on a highly unrepresentative component.  
3. A broad personal income tax cut is mischaracterized as a capital gains proposal: The ballot initiative would reduce the base personal income tax rate applied to wages, salaries, retirement income, and pass-through business income—not merely capital gains. Capital gains account for a relatively small share of personal income tax collections in most years and are among the most volatile revenue sources. Treating the proposal primarily as a capital gains tax cut fundamentally misrepresents its structure and economic reach. An analysis focused almost exclusively on capital gains cannot credibly claim to describe the proposal’s overall impact. 
4. The claim that “most residents see almost no benefit” ignores wage earners: ITEP argues that most residents would see “almost no change” because they do not realize long-term capital gains. That claim collapses once the full base-rate cut is considered, since millions of Massachusetts residents pay the personal income tax on wages and salaries every year. The Mass Opportunity Alliance analysis estimates average taxpayer savings of $1,300 annually once the cut is fully implemented. ITEP’s conclusion rests on excluding the very income source that applies to most households. 
5. Pass-through businesses and S corporations are effectively ignored: ITEP’s analysis gives little attention to pass-through business income, even though it is taxed at the personal income tax rate in Massachusetts and directly affected by the proposed rate cut. S corporations, partnerships, and LLCs account for a large share of small and mid-sized businesses in the Commonwealth—and they are subject to a dizzying cocktail of taxes, including the base 5 percent income tax, the 2022 surtax and the “sting” tax. In Massachusetts, small businesses employ 44 percent of the state’s workforce, according to the U.S. Small Business Administration’s Massachusetts Small Business Profile. (Nationally, pass-through firms—including S corporations and partnerships—account for 38 percent of all private-sector employment, with S corporations alone representing 26 percent, according to the Congressional Research Service.) Because small and mid-sized firms overwhelmingly operate as pass-through entities, a reduction in the base personal income tax rate directly affects their after-tax income, cash flow, and capacity to invest, hire, and expand. By failing to meaningfully account for this channel, ITEP omits one of the proposal’s most economically consequential effects on employment and growth. 
6. One-year income snapshots distort who is labeled a “top 1 percent” beneficiary: ITEP’s distributional tables classify taxpayers based on a single year of income, which is particularly misleading for capital gains. Households that sell a business, property, or long-held asset may appear in the “top 1 percent” for a single year despite having modest lifetime income. Treating these episodic events as evidence that a policy permanently benefits a fixed wealthy class exaggerates concentration and weakens the equity analysis.  
7. Behavioral effects are modeled selectively and asymmetrically: ITEP claims to account for behavioral responses but does so narrowly, applying elasticity assumptions primarily to capital gains realizations. The analysis does not meaningfully model other well-documented responses relevant to state tax policy, including interstate migration, business location decisions, or changes in pass-through income reporting. This selective approach biases the results toward higher projected revenue losses. 
8. Interstate mobility is downplayed despite clear Massachusetts evidence: ITEP likens its modeling approach to federal tax models, even though state tax policy operates in an open interstate environment where mobility matters far more. Pioneer Institute and Boston University have documented substantial out-migration of high-income households from Massachusetts following recent tax increases. Ignoring or minimizing interstate mobility is not a neutral assumption; it directly affects revenue projections and long-term competitiveness. The Commonwealth’s own migration data undermine ITEP’s implicit premise. 
9. No counterfactual analysis of maintaining the status quo: ITEP evaluates the proposal against an assumed neutral baseline, without analyzing the fiscal and economic consequences of inaction. Massachusetts is already experiencing elevated domestic out-migration, slow labor-force growth, and an aging population. Failing to model how these trends affect future revenues implicitly treats the current tax structure as cost-free. That is not a realistic counterfactual for policymakers. 
10. Advocacy framing is presented as technical neutrality: The structure of the brief consistently emphasizes the largest possible cost figure, the most skewed distributional component, and the narrowest group of beneficiaries. At the same time, it minimizes or omits growth effects, business impacts, and historical evidence from Massachusetts’ own tax experience. This combination reflects advocacy priorities rather than neutral fiscal scoring.  

Bottom line
ITEP’s analysis overstates costs and mischaracterizes who benefits by focusing on a sliver of the proposal—capital gains—while ignoring the much larger impact of a broad personal income tax cut. A one-percentage-point rate reduction delivers meaningful relief to millions of Massachusetts households and to small and mid-sized businesses taxed through the personal income tax, including S corporations, partnerships, and LLCs. 

• Those pass-through businesses employ a significant share of the Massachusetts workforce.  

• In addition, independent analyses estimate the average household will save about $1,300 per year.  

By zeroing in on a narrow capital-gains slice and discounting the far larger effects on workers, families, and employers, ITEP purposefully obfuscates the real economic benefits the tax cut represents.