Lawmakers Challenge Assumptions on Tax Competitiveness
STATE HOUSE, BOSTON, March 30, 2026…..As critics say Massachusetts is losing its competitive edge, lawmakers appeared skeptical that a tax cut would move the needle.
“When we talk about competitiveness and attractiveness of the state, it’s always framed by certain groups as taxes. That’s it. But it’s more nuanced than that, right?” Rep. Michael Day of Stoneham said during a hearing Monday on two tax-related initiative petitions. “I think we look at the attractiveness of the state not just in what our tax rate is, but what other features the state offers and where those resources go.”
Day, a member of the Committee on Initiative Petitions, asked the question to Massachusetts Taxpayers Foundation President Doug Howgate, who was invited to testify as a neutral expert on the proposals. One proposal (H 5007) cuts the state’s income tax rate from 5% to 4% over three years, and another (H 5006) caps state revenue collections in an effort to trigger more frequent rebates.
Howgate sees ‘enhanced’ benefits in a booming economy, with reverse true if the economy struggles
Howgate estimated the tax cut would reduce state tax collections by $5.4 billion by fiscal year 2030 and around $801 million in fiscal year 2027. Lawmakers have tools to balance the budget including spending cuts, dipping into cash reserves, finding new revenue sources and increased partnership with the federal government. Budget cuts would likely come from non-discretionary spending such as universal school meals, public education, child care and MassHealth, he said.
Tax cuts would benefit taxpayers by keeping more money in their pockets and would force spending cuts, but Howgate said the policy’s effect on the economy and competitiveness depends on broader economic factors.
Economic Context: Outmigration and Growth Debate
Between 2001 and 2004, when another income tax rate reduction was being implemented, earnings dropped by 14%, out-migration quadrupled and unemployment doubled, Howgate said, noting those changes weren’t necessarily a direct result of dropping income taxes, which fell by around 10% during the period.
“That lesson is really important for whatever happens with this question. If the economy booms for the next three years, the economic benefits of a proposal like this will be enhanced and the public sector downsides will be more muted. If the economy struggles greatly over the next three years, the reverse will be true,” Howgate said.
Competing Views from Massachusetts Taxpayers Foundation and Pioneer Institute
Later in the hearing, lawmakers grilled proponents of the question who say cutting the income tax is crucial to supporting businesses and drawing more residents into Massachusetts.
“I have a whole bunch of questions,” Sen. Barry Finegold of Andover said.
Finegold asked how major companies like Nvidia and Anthropic, which are based in cities with much higher income tax rates than Massachusetts, are able to succeed when they’re in places facing higher housing costs and more crime.
Jim Stergios, executive director of Pioneer Institute, said most people leaving Massachusetts are heading to less expensive states like Florida, New Hampshire and Maine.
“This is not just about taxes, folks, I completely agree with that,” Stergios said. “But I think if we’re going to stem the outmigration and we’re going to address the job creation element here, it’s not going to be because we get ChatGPT to come and move here to Massachusetts. It’s going to be because we actually allow for people here to use their genius, their talents, to develop talent here and to compete on a level playing field.”
Sen. Paul Feeney of Foxborough noted Massachusetts invests in job creation, and said budget cuts as a result of the income tax cut could limit state support for businesses.
“We’re just robbing from that to say, well, we’ll leave it up to you to grow those businesses, and we can’t provide any help. Is that not the case?” Feeney asked proponents.
Proponents responded saying no one is criticizing the state’s support for businesses, but they’re focused on growing jobs and giving business owners more funds to reinvest into their companies.
Lawmakers had very few questions for opponents, who argued that cutting the income tax would force cuts to important public programs and do little to address Massachusetts’ affordability crisis.
Fattman asked opponents for ideas to draw former residents back to Massachusetts.
Jonathan Gruber, chair of MIT’s economics department, said taxes are low on the list of factors residents consider when deciding where to live. He also said Massachusetts has seen growth in international immigration from those attracted to medical and educational institutions.
“A $500 tax cut is not going to help that,” Gruber said. “It’s going to hurt it by risking what’s attracting those people.”
What the Ballot Initiative Could Mean for State Finances
While much of the discussion centered around the proposed income tax cut, lawmakers also heard testimony on the initiative petition capping state tax revenue. Proponents and opponents of the tax cut made similar arguments in support of and against the proposed revenue cap.
Currently, the cap is calculated by multiplying the prior year’s cap by the three-year average growth rate of wages and salaries in Massachusetts, Howgate said. The initiative petition would change how the cap is calculated to multiplying the prior fiscal year’s tax collections by the three-year average of wage and salary growth. If the state exceeds the cap, it must refund taxpayers.
Had the proposal been in place over the past decades, the state would have exceeded its tax collection cap four times and issue about $10.1 billion refunds, as opposed to the one time the Legislature refunded taxpayers, Howgate said. Those refunds would have reduced the state’s stabilization fund, which is currently around $8.3 billion, by about $4.6 billion, he said.
If lawmakers choose not to take action on the ballot initiatives before its May 5 deadline, petitioners must collect an additional 12,429 signatures to ensure the questions appear on the ballot.
