BULLETIN: Massachusetts Needs Growth—Not More of the Same

A Reply to the Mass Taxpayers Foundation’s Opposition to the Tax Cut Proposal

Last week, the Massachusetts Taxpayers Foundation (MTF) released a “Bulletin” announcing its opposition to the tax cut ballot initiative. Odd for a taxpayers foundation to oppose a reduction in taxes. Even odder, however, was the Bulletin’s lack of concern about the Commonwealth’s current economic climate: dismal business formation, job losses, and weakening economic growth across the state. 

MTF argues the tax cut would be fiscally unsustainable. But that view ignores a central reality: the state’s economic malaise is a product of maintaining the status quo. Beacon Hill’s modest reforms have failed to restore growth or competitiveness. The tax cut represents the kind of decisive action policymakers have thus far been unwilling to take. 

• Tax revenues raise economic (business, job and investment) growth.
• Worst-in-the-nation business formation, sustained job losses, and outmigration threaten Massachusetts’ fiscal health.
• Incremental reforms intended to maintain the status quo will not reverse decline.

The MTF Analysis: Static Math, Not Economic Analysis 

MTF’s opposition rests on a single number — a supposed $5.4 billion annual revenue loss from the tax cut. 

That number is static arithmetic — essentially MTF and Tufts’ Center for State Policy Analysis have taken the $27 billion the state collects in income tax and divided it by the rate reduction. This kind of basic math problem is wholly focused on the accounts at 24 Beacon Street — our State House  — not the livelihoods and ambitions of 7 million people who don’t live and work at that address.  

It’s as if the economy outside the State House didn’t exist: MTF’s analysis assumes no economic behavioral responses to a tax cut — no change in investment, job creation, business formation, migration, or long-term feedback effects. There’s no consideration of the effects on Massachusetts’ 144,000 small and mid-sized businesses that are organized as pass-through entities.  

Perhaps most importantly, there’s little consideration of the benefits for the average taxpayer.

MTF argues that the proposed tax cut would do little to improve Massachusetts’ competitiveness because the Commonwealth would only move from 44th to 43rd in top marginal income tax rates. But in fact, the proposal would make Massachusetts far more competitive for a typical taxpayer (with an annual income of $83,730). Today, the Commonwealth’s 5 percent base income tax rate is higher than those in 31 states; at 4 percent, it would be higher than only 19.

A suggestion to our friends at MTF: The first duty of a Taxpayers Foundation is to the people paying taxes, not the people who spend them. 

Economic Activity, Not Higher Taxes, Drives Revenue

During the March 30th hearing before the Special Joint Committee on Initiative Petitions, Pioneer made a simple point: state revenues are fundamentally tied to economic activity. 

When firms are created, when jobs are created, when investment flows—revenues grow. When those conditions reverse, revenues weaken. That is exactly what Massachusetts is experiencing today: slower growth, declining competitiveness, and fiscal strain despite higher tax rates. 

MTF knows this: Indeed, in its Bulletin, MTF bemoans the impact of prior downturns, noting that the state historically responded by drawing down reserves, cutting spending—particularly in local aid and higher education—and raising other taxes and fees. 

It’s a lesson the state also learned after the 2000 tax cuts. Revenues grew 24 percent during the first two years of implementation before falling—as they did nationally—in the wake of the dot-com bust and 9/11. As the macro-economy recovered and expanded, revenues grew in real, inflation-adjusted terms, reinforcing the central point: long-term revenue growth depends on economic growth.

That is what makes Massachusetts’ current trajectory so troubling. The state faces a crisis of affordability, weak business formation, and private sector job loss while attempting to sustain spending growth that the underlying economy can no longer support. The greater fiscal risk to Massachusetts is not tax relief — it is continued economic stagnation and decline.

Massachusetts Is Spending More, Growing Less  

Any observer of the Massachusetts economy today should be deeply concerned. 

Over the past decade and a half, state spending has grown at twice the rate of median household income. Another way of saying this is that the state’s appetite for spending is far outpacing taxpayers’ ability to support its growth.  

And since 2020, the Commonwealth’s economic base has weakened in clear and measurable ways. 

Massachusetts once ranked second in the nation in average net business formation and consistently outperformed the rest of New England. Today, we rank 50th in the nation and are well behind neighboring New England states. Massachusetts posted the lowest average quarterly net business formation rate of any state (0.06 percent)—far below the national average of 0.60 percent and competitor states like Florida (0.87) and North Carolina (0.84). 

Massachusetts once ranked second in the nation in net business formation. Today, we rank 50th.

The job picture is just as stark. Massachusetts has lost 35,000 private-sector jobs, placing it near the bottom nationally, while North Carolina — a direct competitor for STEM talent and investment — has added hundreds of thousands.  A sector-by-sector comparison of GDP growth shows Massachusetts trailing North Carolina in many of the STEM and innovation industries the Commonwealth once dominated.

North Carolina’s experience is instructive. Over the past decade, North Carolina has cut its personal income tax rate from 5.85 percent to a scheduled 3.99 percent and reduced its corporate tax rate from 6 percent to 2.25 percent, with a path to zero. It has attracted investment and created 400,000 private sector jobs since 2020.

These economic results translate directly into better fiscal outcomes. From 2014 to 2024, North Carolina increased real (inflation-adjusted) total tax revenue by 22 percent despite lowering tax rates. That growth was driven by expansion of the economic base — more workers, more firms, more consumption—as reflected in 61.4 percent growth in real sales tax revenue, nearly double Massachusetts’ 34.6 percent over the same period. 

North Carolina and other competitor states are expanding their tax bases by attracting new businesses, jobs, and residents. On top of losing businesses and private-sector jobs, Massachusetts has lost 182,000 domestic residents on a net basis since 2020—about one-and-a-half times the population of Cambridge.

By growing its tax base, North Carolina is expanding the revenue available for public services. Massachusetts is increasingly leaning on a shrinking base — and it will continue to struggle fiscally unless it restores economic competitiveness.

The Alternative Agenda: Incomplete and Underspecified 

MTF has proposed a series of alternatives to the tax cut. At first glance, many of these alternatives — reforms to unemployment insurance, the estate tax, housing, and state spending growth — are good ideas that pro-growth organizations have supported for decades. But on their own, they are unlikely to provide meaningful near-term relief from the Commonwealth’s crises of affordability, job loss, business decline, and outmigration. 

MTF’s alternatives are long-discussed reforms unlikely to deliver meaningful near-term relief.

We can pursue these ideas and a tax cut, but we cannot treat them as mutually exclusive.

Take MTF’s call for unemployment insurance reform. We are in 100 percent agreement that reforms to cap benefit duration, adjust maximum weekly benefits, and tighten earnings requirements for claimants are important — and the Retailers Association and the national Federation for Independent Businesses have led the fight for those changes for decades. They would help employers compete on a more level playing field. But these changes are also politically difficult—which is why we’ve been discussing them for so long. Is it MTF’s view that the tax-cut effort should just stop and wait for reforms that are always just decades away? 

On the estate tax, again — 100 percent agreement on the need to eliminate it. It would take you several hands (and feet) to count the number of organizations seeking that change, again, for decades. But eliminating the tax—as 38 states have done—would run up against a buzzsaw of opposition from progressive legislators. The ask would have to be large—full elimination—for the reform to meaningfully change the behavior of investors and entrepreneurs. MTF is effectively asking the business community to accept more cosmetic reform with limited economic impact.

On housing, again, there is little disagreement. Massachusetts ranks 47th nationally in housing production and would need to increase output by 50 percent over its 10-year average to meet demand. Pioneer and others have worked on this issue for decades through the alphabet soup of Chapter 40 reforms (R, S, T), ADUs, and more. All helpful — but marginal — in impact. Over time, MTF’s proposed “Momentum Zones” would perhaps join that litany of marginal housing reforms.

Lastly, the idea of incorporating growth limits into the consensus revenue process has the strong whiff of past “Blue Ribbon” committees established to address the national debt — they generated good ideas that inspired zero political interest. Any meaningful growth limit on spending raises lots of hard-to-answer questions that, in addition to political appetite, relate to legality (can spending limits be placed on future legislatures?), timing of implementation, and timing of impact on affordability, jobs and business formation.

Conclusion 

MTF’s proposals fall into the “devoutly to be wished for” category of options — debated for years, politically difficult, and unlikely to deliver near-term impact. They are no reason to halt the tax-cut proposal.

Meanwhile, Massachusetts is losing jobs while much of the country grows rapidly. We are losing businesses and failing to create new ones at rates far below New England and the nation. People are hurting. Those are “now” problems. Answer those realities — and then we can have a serious conversation about so-called compromise.