FACT CHECK: Mass Taxpayers’ Index Pinpoints the Commonwealth’s Top Strengths and Weaknesses

In recent months, several indexes measuring state competitiveness have been published, including our own Opportunity Report Card and the Massachusetts Taxpayers Foundation’s (MTF) Massachusetts Competitive Index report. 

While the two indexes make different methodological choices, we find the overall conclusions are the same about the state’s strengths, weaknesses, and emerging opportunities.

Ultimately, the MTF Index, MOA Report Card, and CNBC’s ranking of America’s Top States for Business all conclude that Massachusetts has significant room for improvement when it comes to cost of living, business climate, and outmigration. 

Greatest Strength: Education 

Using National Assessment of Educational Progress (NAEP) scores, both the MOA Report Card and the MTF Competitiveness Index conclude that education is a strong suit for the Bay State. Massachusetts earns its only A on the Report Card in Education, based on the per pupil spending for public school students and 8th grade reading and math NAEP scores. 

The MTF Competitiveness Index similarly concluded that Massachusetts’ strong K-12 education is a crucial quality of life metric that encourages families to remain within the community and contribute to the state’s future talent pool. The Index also compared Massachusetts’ NAEP scores to those of top competitor states (New York, Florida, California, North Carolina, and Texas), as well as to other states in New England.

MTF also found that there is a significant gap in the quality of education among competitor states with the next closest competitor state, New York, ranking 13th in reading and 23rd in math, proving that Massachusetts has a positive edge in this category.

Top Concerns: Outmigration, Taxes, and Cost of Living

Outmigration

The MOA Report Card and MTF Index agree that outmigration is a major weakness for the Commonwealth. Migration earns the second lowest grade on the Report Card, D+, based on the MOA research team’s analysis of the net migration of dollars in and out of the state. The MTF Index notes that domestic outmigration has historically been a weakness for the Bay State, but has worsened since 2020. As of 2023, MA has the fifth worst outmigration rate in the country. 

It’s not all bad. The MTF Index went beyond domestic migration and looked at international migration into the state. The MTF Index found that Massachusetts ranks second in the country for its rate of international migration into the state, which speaks to the ability of Massachusetts’ economy to attract foreign talent and boost the state’s future competitiveness in workforce talent. According to MTF, international immigrants to MA are usually more highly educated and skilled than immigrants to other states.

But, when MTF dug into migration by income level and job-to-job interstate flows, it found that Massachusetts ranks 46th in outmigration for families with household incomes greater than $250,000. Although households earning over $250,000 make up the third largest segment of the population, they accounted for the highest number of people relocating out of the state. This finding matches the data that MOA has previously analyzed.

When it comes to what’s driving people out of state, MTF also discovered that taxes and cost of living were a top concern.

Taxes

Our polling shows that 65 percent of residents believe high taxes are a key issue pushing people out of state. To understand tax burdens, the MOA team studied the various categories of taxes levied on residents per capita, giving Massachusetts a C in taxes. 

The MTF Index emphasized that taxes are a competitive disadvantage for Massachusetts, noting that the state has the fourth highest individual tax collections per capita with state and local tax collections per capita increasing since 2019. Notably, Massachusetts (46th) ranks considerably behind competitor states like Florida (4th), Texas (15th), and North Carolina (18th) in the tax burden.

Cost of Living

MOA’s poll also finds that a whopping 76 percent said general cost of living concerns were driving people out of state. The MOA Report Card gives Mass. a C+ in this area, measuring cost of living by analyzing the state price parities compared to the U.S. average as well as the total income spent on housing, healthcare, and food by Massachusetts residents. 

The MTF Index ranked Massachusetts 47th in the nation for its cost of living based on regional price parity. The only competitor state worse than Massachusetts is California. The MTF Index found that housing and utility costs are the biggest contributors to the cost of living in Massachusetts with housing being 127 percent of the national price level and utility costs being 150 percent of the national price level.

Electricity prices in Massachusetts are twice as high as those in competitor states like North Carolina and Texas, and they are significantly higher than in New York as well. Massachusetts ranks 48th in the nation for energy costs, which have increased since 2021.

Emerging Strengths: Massachusetts’ Innovation Economy

Innovation

MTF agrees Massachusetts is a leader in innovation, but identifies that high costs could be holding businesses back.

MOA’s Opportunity Report Card ranks Massachusetts fourth in the country for number of patents granted per capita in 2023, giving the state an A- for innovation.

MTF found similar outcomes. The MTF Index ranked Massachusetts as the state with the second most patents per 1,000 residents as of 2020. According to the MTF Index, Mass. ranks third among competitor states in venture capital funds, but on a per capita basis, the Bay State outperforms both California and New York.

MTF also ranked Massachusetts second in the nation for research and development (R&D) funding as a share of the state’s GDP. Despite analyzing different metrics, both indexes reach the same conclusion that innovation is a crucial strength for Massachusetts’ competitiveness.

Business Dynamics

However, both MOA and MTF raise alarms that the business environment may be holding competitiveness back. This could negatively impact the future of Massachusetts’ innovation economy.

MOA gives its lowest grade to Massachusetts’ business dynamics category, a D, based on a trending rise in business deaths and relatively low average business age despite leading many states in the number of new business applications. 

The MTF Index paid attention to factors such as the number of businesses per capita, corporate tax burden, and business formations.

MTF ranked Massachusetts in the top third of all states for businesses per capita, but the Commonwealth falls short compared to key competitor states, surpassing only North Carolina. Massachusetts ranks thirteenth in the nation for the number of businesses per capita. 

Corporate Taxes

Corporate taxes also serve as a competitive disadvantage for Massachusetts. According to MTF’s analysis of data from the Tax Foundation, Massachusetts ranks 40th among 44 states for corporate tax rates. (Nevada, Texas, Washington, Wyoming, Ohio, and South Dakota were excluded due to data limitations.) 

Since 2020, Massachusetts corporate income tax collections per capita have increased. Corporate taxes contribute to Massachusetts’s challenges with business costs and affordability, alongside issues like unemployment insurance taxes.

In terms of total business formations, Massachusetts ranks 35th in the nation, and last amongst competitor states, in business formations per employer business. The MTF Index also noted Massachusetts’ business formation rate has trended downward since 2008. 

Massachusetts is on the cutting edge of the nation in terms of investment and leading research industries. However, the state’s relatively un-supportive business regulatory environment could threaten the future of innovation in the Commonwealth.

Emerging Concerns: Massachusetts’ Solid but Declining Workforce Size and Income Inequality 

Labor Force Participation

Part of the reason that outmigration is important to consider when studying state competitiveness is that it impacts the current and future labor force within the state. The MOA research team examined the labor force participation rate in Massachusetts and the unemployment rate, giving the state a B on the Report Card for labor force. 

The MTF Index similarly concluded that Massachusetts’ labor force participation is not a cause for major concern. The participation rate has gone up since 2022 and Mass. ranks thirteenth in the country for its labor force participation rate. Compared to competitor states and New England states, Massachusetts has the highest rate of participation.

The MTF Index took into account natural population change and the population of 25-year-olds with a bachelor’s degree. Measuring the state’s overall demographics, the MTF Index highlighted that the percentage of the Commonwealth’s population over 65, retirement age, has increased since 2018, underscoring the importance of retaining and attracting young people.

Significantly, Massachusetts ranks first in the nation for the percentage of its population 25 years and older with a bachelor’s degree or more, maintaining this ranking for years. The education level of Massachusetts is one of its biggest strengths leading to a highly skilled workforce supported by a strong K-12 education system.

Yet, the MTF Index pointed out that Massachusetts’ declining labor force ranks 48th nationally and dead last among competitor states. Massachusetts experienced a 2.4 percent decline in its labor force from 2018 to 2023, whereas key competitors Texas, Florida, and North Carolina all saw increases of at least 6 percent.

Annual Adjusted Gross Income (AGI)

The MOA research team measured Massachusetts residents’ average annual adjusted gross income (AGI), finding that Mass. residents have the second highest AGI in the country. The MOA Report Card also used average annual wage and salary earnings data to give Massachusetts a B in earnings.

According to MTF, Massachusetts ranks first in the country for its average weekly wages, indicating a combination of high-wage business sectors and a skilled workforce.

MTF explored this further by looking at income levels relative to others in the state, often known as income inequality. The MTF Index measures this by looking at the GINI index, a metric used by economists to compare income inequality.

MTF found that income inequality is a major competitive weakness in Massachusetts across the board (nationally, regionally, and among its competitors), ranking 48th in the nation for its GINI index. Given the high cost of living in Massachusetts, a poor GINI index is particularly concerning.

Conclusion

While Massachusetts excels in areas like education, innovation, and attracting international talent, it faces significant challenges that threaten its long-term competitiveness. High taxes, a rising cost of living, and increasing outmigration, particularly among high-income earners, are eroding the state’s ability to retain and attract residents and businesses. The state’s business environment, burdened by corporate taxes and regulatory hurdles, further compounds these issues, potentially stifling the innovation economy that has long been a hallmark of Massachusetts. 

To maintain its competitive edge, the Commonwealth must address these economic concerns while continuing to leverage its strengths in education, research, and innovation to build a more balanced and sustainable future.