Fact Check: Income Tax Cut Would Deliver a More Competitive and Affordable Massachusetts

Governor Healey recently raised concerns about a ballot proposal to reduce the Massachusetts income tax rate from 5 percent to 4 percent. While there are differing views about how the proposal would impact our economy, it is important to review the data and assumptions underlying these concerns.

Research shows that a phased-in income tax cut – evaluated using both revenue and economic growth projections – presents a credible path toward improving affordability and strengthening Massachusetts’ competitiveness.

FACT: A Tax Cut Won’t Cost $5 Billion

One recently cited concern claimed that 65% of all funding for education would “go away” under this tax cut. To better understand this claim, we need to first look at the projected impact of the tax reduction on state revenue.

Some public statements have suggested the proposal would result in approximately $5 billion in annual revenue loss. But this estimate does not account for the phased-in timing of the cut (over three years) or positive economic growth spurred by the cut.

According to MOA’s revenue model, the net annual revenue impact during the three-year phase-in period is approximately $680 million per year. Following full implementation, economic growth is expected to increase state GDP by as much as $17 billion, contributing to faster revenue growth long term.

FACT: A Tax Cut Won’t Weaken Key State Services

In a recent report, the Governor’s office outlined how it arrived at its assertion that 65% of education funding would be cut to pay for the income tax cut.

It’s important to provide context as to how this number was reached. The 65% figure assumes that the entire cost of the tax cut would come solely out of funding for K-12 education (known as Chapter 70 funding). It was also calculated under the assumption that the tax cut will cost $5 billion (see above).

Historically, revenue adjustments have been managed across the broader state budget, not confined to a single funding category. Current projections for Chapter 70 funding also represent roughly half of total statewide education spending, which exceeds $13 billion annually. Additionally, the Commonwealth is legally required to meet minimum education funding obligations to municipalities.

Any future budget decisions would be made through the annual appropriations process, where policymakers evaluate priorities across a projected FY26 budget exceeding $64 billion.

FACT: Income Tax Cut Would Help Localities and Small Businesses

Massachusetts continues to lose residents, with 2024 outmigration levels significantly higher than those seen in 2010. MOA polling of former state residents found that taxes were the most-cited reason for moving out of Massachusetts.

When residents leave, the effects ripple through the economy. Fewer households mean lower consumer spending and reduced local tax collections. The “brain drain” of talented workers is also bad news for local businesses.

An income tax reduction would increase disposable income for households and directly benefit small and mid-sized businesses. Many of these businesses are structured as pass-through entities, such as S corporations. Essentially, this means these businesses pay taxes through the individual income tax system. As a result, an income tax reduction would lower their tax liability, allowing them to keep more of their earnings.

This is money that businesses can use to support hiring, provide raises, or reduce debt —strengthening local economic activity.

FACT: Income Tax Cuts Will Advance Affordability

Affordability remains a central concern for Massachusetts residents. A recent Suffolk University/Boston Globe poll found taxes were among the top ranking concerns contributing to Massachusetts’ high cost of living.

Our research finds reducing the state’s income tax would save residents an average of $1,300 each year. That represents tens of thousands in savings in future years compared to the status quo, meaning residents have more money in their pockets to cover rent, childcare, groceries, and other key expenses.

Conclusion

Affordability is a key issue plaguing Massachusetts. The Governor has highlighted this concern and advanced policies aimed at reducing costs for residents. The proposed income tax reduction offers a solution focused on long-term economic growth and household relief.

As the debate over how best to increase affordability continues, it is essential that fiscal estimates are evaluated in full context, assumptions are clearly articulated, and economic impacts are carefully weighed. A thoughtful, data-driven discussion will best serve the Commonwealth’s long-term fiscal stability and economic strength.