One percentage point reduction in state income tax would have also reduced outmigration from Massachusetts
BOSTON – A proposal to cut the state income tax rate from 5 percent to 4 percent over three years would have provided the median Massachusetts household with $1,095 in annual tax savings, grown the state economy by $14.5 billion, created 43,000 new jobs, increased total wages by nearly 2 percent and reduced the state unemployment rate by 0.3 percent, according to a new study published by Pioneer Institute.
“An error by the state Attorney General’s Office caused the Supreme Judicial Court to deny Massachusetts voters the chance to vote on the tax cut in November, but this issue isn’t going away,” said Pioneer Executive Director Jim Stergios.
The tax cut could have also reduced the tide of departures from Massachusetts. The Commonwealth lost 324,000 residents, or 4.5 percent of its population, to out-migration from 2015 to 2024. The present value of lost adjusted gross income was $28 billion over 10 years – and $4.18 billion in 2023 alone.
“Some individuals and businesses move directly because of taxes,” said Jared Walczak, author of “The Economics of Cutting Massachusetts’ Income Tax.” “But many more move for jobs and opportunity. They move to where businesses are expanding and hiring. Increasingly, that’s happening in lower-tax states.”
Indeed, only five states and Washington, D.C. lost a larger percentage of their population to net out-migration than Massachusetts did from 2015 to 2024. All except Alaska have a high tax burden.
Conversely, six of the seven states with the largest net in-migration over the decade were low-tax states. Among them were competitor states North Carolina (+6.5 percent) and Florida (+5.8 percent).
A 2023 Greater Boston Chamber of Commerce Foundation survey found that a quarter of young Bostonians expected to leave the area in the next five years; just 38 percent said they were very likely to remain.
In 2000, Massachusetts voters approved a reduction in the income tax rate from 5.85 percent to 5 percent over three years. Due to the dot.com bubble, 9/11 and the Great Recession, the rate didn’t fall to 5 percent until 2020. Since that time, 26 states have reduced their individual income tax rates.
Over the last decade, the median top state income tax rate has fallen from 5.75 percent to 4.7 percent. With the surtax on high earners that was approved in 2022, Massachusetts’ top rate is 9 percent. The surtax on high earners is unaffected by this proposal.
The study finds that the income tax cut would also have helped small businesses, the vast majority of which are called “pass through” entities because business income is passed through to the owner’s tax return. These companies account for nearly 45 percent of employees in the Commonwealth, nearly $110 billion in payroll (in 2022), and over a third of gross revenue from employer businesses in Massachusetts.
The tax cut is affordable
In recent years Massachusetts has seen sustained revenue growth. Inflation-adjusted tax revenue rose 62 percent from fiscal 2010 to fiscal 2025, far exceeding the growth in median household income. Growth over the last five years alone generated nearly double the cost of implementing the one percentage point cut in the income tax rate.
Part of the initial loss of revenue would be offset by additional growth in the personal, corporate and sales tax revenue the rate cut would generate. Walczak estimates that revenue would return to pre-cut levels just over three years after the rate reduction, which would be implemented over three years, is fully phased in. Future revenues would likely grow more quickly to do additional jobs, higher wages and more economic growth after the tax reduction.
“The glee of some legislators after the state’s highest court removed the tax-cut initiative from the ballot amounts to a celebration of the status quo—a Massachusetts in economic decline,” Stergios said. “A one percentage point income tax cut meant tens of thousands of new jobs, the growth of local businesses—and the opportunities that would have given young people a reason to build their futures in Massachusetts.”
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Jared Walczak is President of Walczak Policy Consulting and a Senior Fellow at the Tax Foundation, where he spent five years as Vice President of State Projects. He holds visiting fellow roles with several state-based policy organizations. He is a member of the faculty of the Institute for Professionals in Taxation and serves on the advisory board of the Institute for State Policy Leaders. He has authored or coauthored tax reform guides in more than a dozen states. Jared is also a Tax Notes State magazine contributor and authors TheSALTRoad.net, a free Substack newsletter on state and local tax policy.
Pioneer Institute empowers Americans with choices and opportunities to live freely and thrive. Through expert research, educational initiatives, legal action, and coalition-building, we advance human potential in four critical areas: K–12 Education, Health, Economic Opportunity and American Civic Values.
