Economic Competitiveness: A Vision for Effective, Limited Government
This chapter of Pioneer Institute’s Agenda for Leadership highlights how Massachusetts’ ongoing outmigration of residents, businesses, and capital is closely tied to the state’s tax and regulatory environment. Backed by new census data and survey research, the report shows how current policies are undermining competitiveness—especially for small and mid-sized businesses. It lays out clear, actionable reforms that Massachusetts can adopt now to retain employers, attract investment, and put the Commonwealth back on a path to sustainable growth.
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Economic Competitiveness: A Vision for Growth and Opportunity
Outmigration of Talent & Capital
The net outflow of people from Massachusetts is accelerating—and it increasingly includes those who we can least afford to lose. According to IRS data, the state lost over 26,000 residents in 2022 alone, with $10.7 billion in net adjusted gross income (AGI) lost between 2020 and 2022—more than the total lost from 2012 to 2019. Most of that wealth—66 percent—went to just two states: Florida and New Hampshire, both of which have no income or estate tax.[i]
According to IRS data, the state lost over 26,000 residents in 2022 alone, with $10.7 billion in net adjusted gross income (AGI) lost between 2020 and 2022—more than the total lost from 2012 to 2019.
A poll of more than 500 former Massachusetts residents by the Mass Opportunity Alliance found that 70.7 percent cited tax policy as a major reason for leaving, with housing and healthcare costs close behind. Nearly 70 percent were employed full-time or self-employed before moving, indicating a flight of working residents—not retirees. IRS data confirms this wealth migration. Although just 1 percent of MA taxpayers earn more than $1 million annually, they made up 3 percent of those relocating to Florida and New Hampshire.[ii]
Meanwhile, The Massachusetts Society of CPAs surveyed nearly 200 accountants representing 4,600 high-income clients. A staggering 70 percent of those CPAs said at least one of their clients changed primary residence in 2024, with tax policy, cost of living, and business climate the most commonly expressed concerns.[iii] Yet some studies continue to downplay the trend, often using flawed assumptions and incomplete data.
If we want to remain a state where people build businesses, raise families, and invest in the future, we must address the structural tax and cost pressures that are driving them out. That includes rejecting the proposed corporate surtax ballot initiative and enacting targeted reforms that reduce the burdens on multistate businesses, S corporations, startups, and mobile high-income earners.
Figure 2. MA Net Income & Tax Filer Migration, by Tax Year
Massachusetts’ Sputtering Job Engine
The Massachusetts job engine is not keeping pace with the nation—especially in the private sector. From January 2020 through March 2025, Massachusetts lost 24,100 non-farm jobs—making it one of just four states to see a net decline. By contrast, North Carolina, powered by growth in the Research Triangle and Charlotte areas—regional economies with similar industry profiles to Greater Boston—added a combined 254,900 jobs.[iv] Had Massachusetts matched that level of growth, the Commonwealth would have seen an estimated $1.3 billion in additional income and sales tax revenue, as well as higher retention of young workers and stronger business investment.
Figure 3. Change in Private employment, Jan 2020–Mar 2025
Even more concerning is the fact that we are underperforming in the sectors that define Massachusetts’ innovation economy. From 2020 to 2024, our share of national GDP in professional, scientific, and technical services—a cornerstone of our high-skilled labor market—fell by 6.6 percent. In contrast, states like Texas, Florida, and North Carolina gained market share. Massachusetts also lagged the national average in finance, real estate, and manufacturing. Only the information sector posted stronger growth than the U.S. average, but it still fell short of top-tier states.[v]
A Pioneer Institute analysis further found that Massachusetts’ Gross State Product per capita for private industry grew just 11.9 percent from 2020 to 2024, ranking 30th among all states—far behind Florida (17.2 percent), Texas (15.9 percent), and New Hampshire (14.8 percent).[vi] High corporate taxes, restrictive professional licensing, permitting hurdles, and poor zoning practices all discourage business growth. Additional barriers like parking mandates for new housing and outdated business registration systems further hinder expansion and job creation.
Housing Production & Affordability
Massachusetts has become one of the most expensive states to live in, largely because we’ve failed to build enough housing. We rank near the bottom nationally in housing permits per capita,[vii] and in Greater Boston the shortage is driving prices beyond what young workers, families, and even middle-income professionals can afford.
To address the problem, our comprehensive housing strategy includes eight reforms. We call for clarifying site plan review as a predictable, by-right process; ending frivolous legal appeals that delay projects; and lowering supermajority thresholds for local zoning votes. We advocate for allowing housing by right in commercial and industrial zones, especially where demand for retail and warehouse space is relatively weak. We urge the elimination of costly parking mandates, providing more flexible zoning in residential areas with existing sewer and water infrastructure, and ensuring that only truly affordable units count toward the state’s subsidized housing inventory.
Without bold state action—and a willingness to model the reforms we ask of municipalities—we will fall further behind. These housing reforms are essential not only for affordability but also for unlocking the workforce and economic growth our future depends on.
Expanding Economic Freedom: Unlocking Entrepreneurship & Removing Barriers to Work
Massachusetts has long relied on its knowledge industries, elite universities, and skilled workforce, but its outdated regulatory infrastructure is holding back economic growth. The Commonwealth layers duplicative rules across state and local government, burdening small businesses with confusing processes and high costs. Even low-impact home businesses face licensing hurdles. By contrast, Utah offers one modern, pro-growth model: a centralized regulatory Relief Unit, fast-track municipal licensing, industry-specific “sandbox” programs for innovation, and mandatory sunset reviews for all regulations. These tools improve transparency, reduce costs, and let state policy evolve with the economy. Massachusetts should adopt similar reforms—creating a Regulatory Relief Unit, launching sector-specific sandboxes, and consolidating services into a single online portal to improve the startup climate, especially for small and immigrant-owned businesses.
Occupational licensing reform is especially overdue. Nearly 30 percent of U.S. workers need a license, and in Massachusetts, the average license takes 511 days to obtain. Requirements are often excessive and misaligned with risk—a barber needs 1,000 hours of training, while an EMT needs just 150.[viii] Massachusetts also suspends licenses for student loan defaults and denies access to many immigrants, locking qualified people out of the workforce. The state should repeal licenses for lower skilled non-healthcare occupations and replace them with voluntary certification, recognize out-of-state licenses universally (as 20 states already do),[ix] and expand promising initiatives like apprenticeship pathways for foreign-trained health professionals. These changes would improve labor mobility, fill workforce shortages in fields like nursing and behavioral health, and reduce “brain waste” among skilled immigrants—all while preserving public safety.
Finally, Massachusetts must do more to support entrepreneurs and workers, especially those in immigrant communities and communities of color. As shown in figure 4, foreign-born residents are more likely to start businesses than U.S.-born residents but face barriers like language access, fragmented startup processes, and outdated licensing regimes.
Figure 4. Outsized Shares of Immigrants in Entrepreneurship & labor Force, 2023
At the same time, as Figure 5 shows, our larger segments of underemployed workers are foreign born or of color. English proficiency remains a major hurdle: 14 percent of immigrant workers are underemployed, English for speakers of other languages (ESOL) waitlists exceed 17,000 people (with no statewide system to match students with open seats), and just 7 percent of programs include job or business training.[x] In order to unlock economic potential, expand the tax base, and strengthen Massachusetts’ competitiveness, the state must remove the barriers that keep ready workers and entrepreneurs on the sidelines.
Figure 5. Underemployed Workers by Demographic Characteristics, 2022
Attract Talent and Capital to Reignite Job Growth
Reform Interstate Sales Taxation to Stop Penalizing Multistate Firms
Massachusetts is one of 19 states that imposes a “throwback rule,” which allows the state to tax income from sales of tangible goods in states where the seller is not taxable.[xi] These untaxed out-of-state sales are “thrown back” into the Massachusetts tax base, often resulting in higher tax liability for in-state companies. This policy undermines the state’s single sales factor apportionment, which was designed to attract multistate corporations by limiting taxation to Massachusetts-based sales. It disproportionately impacts manufacturers and businesses that sell into multiple states but are not taxed in those jurisdictions. Several states—including Alabama, Missouri, Vermont, West Virginia, and Arkansas—have recently repealed their throwback or throw-out rules.[xii] The “throw-out” rule, currently used only in Maine, excludes these sales from the denominator of the sales factor, thus striking a middle ground between adopting a throwback rule and eliminating it.
Maintaining the throwback rule punishes interstate commerce and contradicts Massachusetts’ broader competitiveness goals.[xiii] This reform would reduce the over-taxation of untaxed out-of-state sales, better align Massachusetts with competitor states, and reinforce the pro-growth intent of the single sales factor apportionment policy.
Recommendation: Replace the throwback rule with a throw-out rule.
Raise the S-Corp Surtax Threshold to Protect Small Businesses
Massachusetts imposes a unique surtax—known as the “sting tax”—on S corporations with gross receipts above $6 million: 2 percent on receipts between $6–$9 million and 3 percent above $9 million.[xiv] This structure, created to align S corporation taxes with those of C corporations, is now outdated. Massachusetts is the only state with a gross receipts-based surtax targeted solely at S corporations.[xv] The thresholds have not been updated since 2008 and now affect many businesses that have grown only because of inflation, not scale. Unlike income-based taxes, this surtax applies even to businesses that aren’t profitable. The Massachusetts Society of CPAs has identified this tax as a major reason why businesses consider relocating. It also deters new investment and hiring in a state already challenged by high costs and outmigration of talent.[xvi]
Recommendation: Raise the S corporation surtax thresholds by at least 50 percent and index them to inflation. This would protect small and mid-sized businesses from unintended tax burdens and preserve Massachusetts’ appeal to entrepreneurs and high-growth firms.
Eliminate the Minimum Corporate Excise to Support Entrepreneurship
Massachusetts requires all corporations, including S corporations and inactive entities, to pay a $456 minimum corporate excise tax—regardless of profitability or scale. When passed into law in 1969, the tax made sense given that economic transactions were dependent on physical presence. But in today’s digital business environment, it acts as a deterrent to startups and immigrant entrepreneurs. By contrast, New Hampshire, Florida, and Texas impose no such tax, and North Carolina—with a $200 minimum—is phasing out its corporate income tax altogether. Massachusetts’ minimum tax sends the wrong signal to early-stage businesses choosing where to launch, grow, or reincorporate. For firms in high-cost sectors such as biotech, professional services, and clean energy, these fixed costs add up quickly.[xvii]
Recommendation: Eliminate the minimum corporate excise tax to encourage business formation and reduce fixed costs for startups and small firms. This would better align Massachusetts with peer states that prioritize innovation, investment, and entrepreneurship.
Repeal Asset-Based Corporate Taxes to Spur Investment
Massachusetts’ corporate excise includes a second component—a tax on corporate property or net worth—set at $2.60 per $1,000 of value. This applies even if a business isn’t profitable. Only 11 states tax both tangible and intangible corporate assets, and when Louisiana phases out its capital stock tax in 2026, Massachusetts will have the nation’s highest tax rate on intangible corporate assets.[xviii] The tax discourages firms from investing in infrastructure, inventory, or intellectual property—especially if the assets are located in Massachusetts. It also creates significant compliance burdens, as firms must value all assets annually and track shifting liabilities. For businesses in volatile or capital-intensive industries, the asset tax introduces risk and uncertainty, undermining Massachusetts’ status as a hub for manufacturing, life sciences, and advanced services.[xix]
Recommendation: Eliminate or simplify the non-income portion of the corporate excise. Removing or reducing this tax would lower compliance costs, encourage capital investment, and improve Massachusetts’ ability to attract and retain business operations.
Exempt Rolling Stock from the Use Tax to Make Massachusetts a Logistics Hub
Massachusetts currently applies a 6.25 percent use tax to trucks, trailers, and other commercial “rolling stock” used in interstate commerce. This treatment—unusual nationally—raises costs for transportation, logistics, and distribution for companies operating in the state. According to a 2018 report by the American Transportation Research Institute, all other Northeastern states except Vermont exempt rolling stock. Overall, 36 states offer this exemption.[xx] By treating rolling stock as a taxable consumer item rather than a business input, Massachusetts places itself at a competitive disadvantage—despite its strong infrastructure and geographic location.[xxi]
Recommendation: Exempt rolling stock used in interstate commerce from the use tax. This would lower costs for logistics and freight operators, support regional competitiveness, and position Massachusetts as a stronger hub for goods movement and supply chain growth.
Align the Estate Tax with Federal Policy to Stem Outmigration
Massachusetts continues to impose one of the strictest estate taxes in the country. While a 2023 reform exempted estates below $2 million and shifted the tax to only the portion above that threshold, key flaws remain: the exemption is not portable between spouses and is not indexed for inflation. As asset values rise, more families, small business owners, and retirees are subject to the tax. Massachusetts is one of only 12 states with an estate tax and is a consistent outlier compared to Florida, New Hampshire, and even neighboring states like New York, which offer higher exemptions.[xxii] A Massachusetts Society of CPAs survey found that 55 percent of clients viewed raising the exemption threshold to $5 million (indexed to inflation) as a likely deterrent to relocation.[xxiii] Combined with the 4 percent surtax on high earners, the estate tax accelerates the outmigration of wealth and tax revenue.[xxiv]
Recommendation: Eliminate the estate tax or raise the exemption to match the federal threshold ($13.99 million in 2025), with portability and inflation indexing. Doing so would retain high-income residents, preserve long-term tax revenue, and reduce financial uncertainty for families and business owners.
[i] https://massirsdatadiscovery.com/tax-payer-migration/state-to-state-migration; Mark T. Williams, with Yuhan Li, Linglan Xu, “Mass Outmigration Study,” April 2024, https://acrobat.adobe.com/id/urn:aaid:sc:US:52a83fb3-5e21-408d-8113-3d3c2da5d79d?viewerpercent21megaVerb=group-discover; Aidan Enright, “Mass Out-Migration: Outflow of Wealth and Residents Continues,” November 2024, https://pioneerinstitute.org/economic_opportunity/pioneer-institute-study-finds-massachusetts-saw-four-fold-loss-of-income-to-net-outmigration/.
[ii] MassOpportunity Alliance, “A Survey of Former Massachusetts Residents on Reasons for Leaving,” https://massopportunity.org/content/report/a-survey-of-former-massachusetts-residents-on-reasons-for-leaving/; https://massopportunity.org/wp-content/uploads/2025/02/MOA_Mass_Exodus_020425.pdf.
[iii] Massachusetts Society of CPAs, “2025 Public Policy and State Competitiveness Report,” https://www.masscpas.org/news/9e8c24aa-b51c-4c18-8c3d-82c229a20d5a:2025-public-policy-and-state-competitiveness-report;
[iv] Aidan Enright, “Massachusetts at Risk: The Alarming Decline of Private Sector Employment Growth,” May 2025, https://pioneerinstitute.org/wp-content/uploads/Private-Sector-Brief-05062025.pdf; Jim Stergios, “Massachusetts Has One of the Slowest Job Growth Rates in the Country. That’s a Big Problem,” Commonwealth Beacon, April 2025, https://commonwealthbeacon.org/opinion/massachusetts-has-one-of-the-slowest-job-growth-rates-in-the-country-thats-a-big-problem/.
[v] Aidan Enright, “Massachusetts at Risk: GSP Growth Slows Relative to Competitor States,” June 2025, https://pioneerinstitute.org/economic_opportunity/new-report-shows-massachusetts-has-been-in-economic-slow-down-since-2020/.
[vi] Aidan Enright, “Massachusetts at Risk: GSP Growth Slows Relative to Competitor States,” June 2025, https://pioneerinstitute.org/economic_opportunity/new-report-shows-massachusetts-has-been-in-economic-slow-down-since-2020/.
[vii] Andrew Mikula, “The House Call: In 2024, Massachusetts Had One of the Nation’s Lowest Per Capita Rates of Permitting for New Homes,” May 2025, https://pioneerinstitute.org/featured/in-2024-massachusetts-had-one-of-the-nations-lowest-per-capita-rates-of-permitting-for-new-homes/; Andrew Mikula, “Sticker Prices, Elastic Supply, and Geography: A Cross-Metro Housing Affordability Analysis,” December 2024, https://pioneerinstitute.org/wp-content/uploads/Cross-Metro-Analysis-White-Paper-12052024.pdf.
[viii] Alex Muresianu, “How Occupational Licensing Laws Reduce State and Local Tax Revenues: The Public Finance Case for Occupational Licensing Reform,” November 2019, https://pioneerinstitute.org/press_releases/economic-opportunity-pr/new-study-excessive-occupational-licensing-hurts-state-economy-reduces-tax-revenue/.
[ix] https://ij.org/legislative-advocacy/states-reforms-for-universal-recognition-of-occupational-licensing/
[x] Blake H. Heller and Kirsten Slungaard Mumma, “Immigrant Integration in the United States: The Role of Adult English Language Training,” American Economic Journal: Economic Policy 2023, 15(3): 407–437, https://pubs.aeaweb.org/doi/pdfplus/10.1257/pol.20210336
[xi] https://taxfoundation.org/data/all/state/throwback-rules-throwout-rules-2024/
[xii] https://taxfoundation.org/data/all/state/throwback-rules-throwout-rules-2024/
[xiii] Andrew Mikula and Daniel P. Ryan, “The Case for Competitiveness: A Menu of Pro-Growth Changes to Massachusetts Business Tax Policy,” August 2025, https://pioneerinstitute.org/economic_opportunity/new-study-highlights-tax-reforms-that-would-enhance-massachusetts-competitiveness/.
[xiv] “S Corporations.” n.d. Mass.Gov. https://www.mass.gov/info-details/s-corporations
[xv] Andrew Mikula and Daniel P. Ryan, “The Case for Competitiveness: A Menu of Pro-Growth Changes to Massachusetts Business Tax Policy,” August 2025, https://pioneerinstitute.org/economic_opportunity/new-study-highlights-tax-reforms-that-would-enhance-massachusetts-competitiveness/.
[xvi] Andrew Mikula and Daniel P. Ryan, “The Case for Competitiveness: A Menu of Pro-Growth Changes to Massachusetts Business Tax Policy,” August 2025, https://pioneerinstitute.org/economic_opportunity/new-study-highlights-tax-reforms-that-would-enhance-massachusetts-competitiveness/.
[xvii] Andrew Mikula and Daniel P. Ryan, “The Case for Competitiveness: A Menu of Pro-Growth Changes to Massachusetts Business Tax Policy,” August 2025, https://pioneerinstitute.org/economic_opportunity/new-study-highlights-tax-reforms-that-would-enhance-massachusetts-competitiveness/.
[xviii] Andrew Mikula and Daniel P. Ryan, “The Case for Competitiveness: A Menu of Pro-Growth Changes to Massachusetts Business Tax Policy,” August 2025, https://pioneerinstitute.org/economic_opportunity/new-study-highlights-tax-reforms-that-would-enhance-massachusetts-competitiveness/.
[xix] Andrew Mikula and Daniel P. Ryan, “The Case for Competitiveness: A Menu of Pro-Growth Changes to Massachusetts Business Tax Policy,” August 2025, https://pioneerinstitute.org/economic_opportunity/new-study-highlights-tax-reforms-that-would-enhance-massachusetts-competitiveness/.
[xx] “Rolling Stock Sales Tax Exemptions on Parts/Equipment, by State, Current as of 2018 ATRI Research.” 2023. Overdrive. December 14, 2023. https://www.overdriveonline.com/maintenance/document/15660310/rolling-stock-sales-tax-exemptions-on-partsequipment-by-state-current-as-of-2018-atri-research
[xxi] Andrew Mikula and Daniel P. Ryan, “The Case for Competitiveness: A Menu of Pro-Growth Changes to Massachusetts Business Tax Policy,” August 2025, https://pioneerinstitute.org/economic_opportunity/new-study-highlights-tax-reforms-that-would-enhance-massachusetts-competitiveness/.
[xxii] Johns, Joseph. 2025. “Estate and Inheritance Taxes by State, 2024.” Tax Foundation. March 5, 2025. https://taxfoundation.org/data/all/state/estate-inheritance-taxes/
[xxiii] “Massachusetts Is Losing Residents and It’s Getting Worse: Can Tax Policy Changes Mitigate Outmigration?” 2023. Massachusetts Society of CPAs. https://www.masscpas.org/storage/files/7338cbb72f2eca23dd49a55a446f4f65.pdf
[xxiv] Andrew Mikula and Daniel P. Ryan, “The Case for Competitiveness: A Menu of Pro-Growth Changes to Massachusetts Business Tax Policy,” August 2025, https://pioneerinstitute.org/economic_opportunity/new-study-highlights-tax-reforms-that-would-enhance-massachusetts-competitiveness/.