FACT CHECK: A Tax-and-Spend Model Doesn’t Lead to Economic Prosperity

Back when our state’s fiscal policy relied largely on taxing and spending—the idea that if you need to find more money in the budget, you simply get it from taxpayers—the Commonwealth earned the nickname “Taxachusetts.” As a result, families fled, businesses avoided us, and our economy stagnated under crushing tax burdens. It took the fiscal discipline of Proposition 2 ½ to help transform our state into an innovation powerhouse.

Now, proponents of this tax-and-spend model want us to forget that history lesson and return to the failed policies that nearly destroyed our state’s competitiveness.

A Case Study from the 1980s

Federal budget cuts under the Reagan administration forced Boston and other cities to cut spending. Simultaneously, Massachusetts enacted Proposition 2 ½, which limits local property tax increases to no more than 2.5 percent annually plus new asset growth. To go higher than this set limit, voters must approve the increase through a ballot referendum.

At the time, the budget cuts faced a frenzy of opposition. Then-mayor of Boston Kevin White equated the property tax reforms and federal reductions to “cutting the patient ‘right through the midsection.’” Politicians, business leaders, and labor leaders said the reforms would turn the state into an economic horror story.

But instead of the sky falling, the state thrived.

The “Massachusetts Miracle”

The new tax cap forced cities and towns to rethink spending. This was one reason the state experienced a remarkable economic revival, deemed the “Massachusetts Miracle,” propelled by high-tech sector expansion and innovation centers along Route 128. Employment levels rose substantially from 12 percent unemployment to less than 3 percent as Massachusetts’ overall fiscal condition strengthened dramatically.

The results speak for themselves:

• Massachusetts fell from having the 3rd highest property tax burden per capita in 1981 ($562) to 12th by 1987 ($640) to 22nd by 1992; 
• The total property tax levy, when adjusted for inflation, actually decreased by about 1.6 percent over the implementation period;
• Perhaps most telling was the billion-dollar swing in state finances—from a $500 million deficit in the mid-1970s to a surplus exceeding $500 million a decade later;
• The state doubled aid to municipalities between 1981 and 1986, shifting the burden off regressive property taxes while fostering a more balanced approach; 
• Local budgets still grew approximately 8 percent over 15 years (1981–1995) when adjusted for inflation.

Proposition 2 ½ didn’t gut local government—it recalibrated it. The change in local budgets following the law proved that fiscal discipline didn’t strangle local services but created the foundation for lasting prosperity.

State Spending Undermines Local Fiscal Responsibility

While Proposition 2 ½ brought discipline to local budgets, state leaders in the late 1980s failed to show the same restraint. Even during the nationwide economic boom, the local fiscal responsibility of Proposition 2 ½ could not sustain Massachusetts’ economic growth when state spending rapidly grew out of control. 

With budget deficits approaching $1 billion, policymakers responded not with reform at the state level, but with massive tax increases and deep service cuts. Governor Dukakis even proposed a shocking 15 percent temporary increase in state personal income taxes.

The result was a rapid fiscal unraveling—unemployment spiked from 3.1 percent to 9.1 percent in just three years. Today, we’re seeing the same pattern: overspending during good times, followed by calls to raise hefty taxes when the bills come due. 

It didn’t work then, and it won’t work now.

The Current Crisis

The state’s high taxes, including its recently implemented surtax on high-earners, suggest we’re returning to an unsustainable tax-and-spend mindset. We know from history how this plays out, and we’re already seeing the consequences.

• Tax policy is now the top reason people leave Massachusetts, according to polling and data analysis;
• 70 percent of CPAs report high-income clients changed their primary residence last year, according to the Massachusetts Society of CPAs; and
• Policy expert Evan Horowitz warns that Massachusetts faces “significant economic turmoil” and has advised lawmakers to reduce revenue expectations by $1 billion.

Each high-earner who leaves doesn’t just take their income tax payments—they take their property taxes, sales taxes, and the economic activity that supports middle-class jobs.

How Higher Taxes Make Cost of Living Worse

1. Higher taxes drive up the cost of living in Massachusetts—including housing and other necessities;
2. Business flight due to a hostile tax and regulatory environment reduces competitive employment opportunities for remaining workers;
3. Stagnated economic dynamism means fewer startups and innovations that create good-paying jobs;
4. Government inefficiency grows when spending isn’t appropriately constrained, wasting resources that could lower costs for Massachusetts families.

The Massachusetts Miracle proved that fiscal discipline creates the conditions for broad-based prosperity. It taught us that when businesses thrive and compete for workers, wages rise naturally. When housing supply increases due to economic growth and reduced property taxes, the cost of living moderates. When state and local governments operate efficiently, they can provide better services at lower cost.

Learning from Our Past

We must learn from our past and choose the fiscal discipline now for long-term economic benefits—not more tax-and-spend politics. The state’s policies can easily undermine economic growth—or spur it into action. Policymakers should keep in mind that our most successful economic period followed tax reform, not tax increases.