Empirical review of two decades of state revenue data shows no evidence of sharp or lasting revenue declines from prior rate reductions
BOSTON — November 3, 2025 — A new Pioneer Institute analysis, Lessons from the 2000 Massachusetts Income-Tax Rollback: A Reality-Check for the 2025 Ballot Debate, draws on more than two decades of fiscal data to conclude that reducing Massachusetts’ personal income-tax rate from 5 percent to 4 percent is unlikely to lead to significant or sustained losses in state revenue.
“Critics of the tax proposal are once again trotting out the same simplistic doomsday analysis they did when a proposal to cut the state income tax rate was last on the ballot in 2000,” said Jim Stergios, Pioneer’s executive director. “The evidence is clear: a 1 percent income tax cut implemented over three years did not cause a dramatic fall in revenues then, and it won’t now.”
Key findings from the empirical analysis
Critics’ predictions far overstated the real impact on revenues. In 2000, opponents warned that the phased-in one-point reduction would “slash tax revenues” by $2.7 billion over four years.
- The actual first-year effect of the rate stepdown from 5.95 percent to 5.6 percent was about $530 million—roughly one-fifth of the projected loss.
- Economic context explains first-year volatility. (2001–2002) when the revenue falloff coincided with the dot-com collapse and the aftermath of 9/11. States such as California and New York, which did not cut their income-tax rates, experienced comparable or larger declines—confirming that macroeconomic shocks, not policy, drove the short-term downturn.
- Already in the second year (2002-2003) personal income tax revenues had stabilized, growing from $7.9 to $8.0 billion.
- There was no evidence of rate-driven declines across all subsequent years. When rate reductions occurred, year-over-year personal-income-tax (PIT) revenues were stable or positive.
- Lower rates drove higher real (inflation-adjusted) revenue. Longer term, inflation-adjusted personal income tax collections at the 5.3 percent and 5 percent rate exceeded those at 5.95 percent, showing that economic and wage growth offset the lower rate.
“Poll after poll shows that the vast majority of Massachusetts families want tax relief. Families feel squeezed for every penny as growth in the state budget far outpaces household income,” Stergios said. “And for a state that’s losing private-sector jobs, talent, and investment to other states, a tax cut is an unalloyed good thing.”
About the paper
Lessons from the 2000 Massachusetts Income-Tax Rollback: A Reality-Check for the 2025 Ballot Debate is an empirical analysis of Massachusetts revenue data from FY1998–FY2021. The study concludes that a one-point rate reduction is unlikely to produce large, persistent revenue shortfalls, and that long-term fiscal stability depends far more on economic performance than on marginal rate differences.
