April 15th is more than a filing deadline – it’s a moment to reflect on how tax policy shapes the economic trajectory of Massachusetts. As residents finalize their returns, a broader question looms: are current tax policies helping the state grow, or quietly pushing people and capital elsewhere?
One of the most hotly debated issues is whether and to what extent cutting taxes reduces government revenue. Historical evidence from Massachusetts suggests the answer is not so simple. When voters approved a phased income tax rollback in a 2000 referendum – from 5.85 percent to 5.0 percent, critics warned it would slash revenues by $2.7 billion over four years. While the state did lose $2 billion in revenue in FY 2002 after a 0.3 percent reduction in the tax rate, most of the losses were attributable to broader economic conditions and the Dot-com bubble bursting – only $530 million was a result of the decrease.
Revenues also stabilized quickly. Personal income tax collections rose from $7.9 billion to $8.0 billion between 2002 and 2003, and in the years that followed, revenues generally remained flat or increased despite lower tax rates. This suggests that economic growth and taxpayer behavior can offset at least part of the static losses assumed in traditional forecasts.
A comparison between Massachusetts and North Carolina provides further evidence that income tax reductions can be coupled with continued revenue growth. From 2014 to 2024, North Carolina aggressively cut their income tax rate from 5.8 percent to 4.6 percent while Massachusetts made only minor adjustments (reducing the rate from 5.2 to 5.0 percent), yet real (inflation adjusted) income tax revenues grew in both states (11.8 percent in NC vs. 27.7 percent in MA). The primary difference occurred in 2024 when tax revenue growth in Massachusetts was driven by the voter approved four percent surtax on incomes over $1 million which took effect in 2023. From 2014 to 2022, before the surtax took effect, revenue growth for both states tracked more similarly (27 percent growth in NC vs. 37 percent in MA). The surtax, while raising additional revenue, also contributed to a decline in Massachusetts’ tax competitiveness and possibly the state’s weaker overall economic environment, where in the last several years employment growth has stalled, investment has diminished, and business growth has been anemic. It has also created a greater reliance in the Commonwealth on a small number of high-income earners to generate tax revenue.
Conversely, North Carolina’s income tax revenue continued to grow because, while its rate declined, it attracted businesses and new residents that gradually expanded its tax base and made the state more economically prosperous and dynamic. From January 2020 to January 2026, North Carolina’s private sector added 400,000 new jobs, while Massachusetts lost 35,000. According to Census Bureau estimates, Massachusetts has lost 180,000 residents to domestic outmigration since 2020 while North Carolina has gained nearly 480,000.
Many of the residents fleeing Massachusetts are relocating to states with lower tax burdens. According to IRS data, from 2020 to 2023, of the nearly $15 billion in lost net adjusted gross income from residents leaving Massachusetts, roughly 60 percent has flowed to Florida and New Hampshire, both of which offer no income tax. These migration patterns underscore a key reality: taxpayers today are mobile and state policy differences matter.
A comparison with other faster-growing states reinforces this point. States with lower taxes and fewer regulatory burdens have seen stronger job creation and population inflows, while Massachusetts has struggled to keep pace. The result is not just slower growth, but a shrinking share of the very taxpayers who contribute most to state revenues.
So what should policymakers – and taxpayers – take away this Tax Day?
Tax Day is ultimately about more than what individuals owe – it’s about the incentives that shape where people choose to live, work, and invest. Massachusetts has long been a hub of innovation and opportunity, but maintaining that position will require careful attention to how policy decisions affect competitiveness in an increasingly mobile economy.
