Grading Opportunity: High Taxes & High Costs Bring MA Down

Just as students are wrapping up classes and taking home their final report cards, we’re doing the same for the Commonwealth. But our latest grade might not be one we’re rushing to hang on the fridge.

At the launch of MOA, we created our Opportunity Report Card as a way to grade Massachusetts on the health and competitiveness of its economy, as well its quality of life. The report card looks at key factors in residential migration, business dynamics, production, labor force, public services, taxes, cost of living, housing, and earnings. We update available data across these factors and score Massachusetts based on U.S.-wide performance, to isolate state-level trends that could be the result of state policy decisions or other factors unique to the Commonwealth.

Now, two years after launch, it’s a good time to look back at Massachusetts’ progress, and see what headway – or setbacks – the Commonwealth has seen lately. Due to variance in data update schedules from different government sources, this also provides us a more complete view of recent changes in the Commonwealth.

Averaging those individual issue scores together this year gave Massachusetts a C+ in overall competitiveness. Here’s a look at our progress over the last two years:

Education and Innovation are Bright Spots

In recent years, Massachusetts has led the nation in terms of education performance. This is due in part to state education reforms passed in 1993, which created strong curriculum standards and graduation requirements.

The latest data available from 2024 is no exception: Massachusetts students currently hold the top spots in both grade 8 elementary reading and math proficiency. As a result, Massachusetts holds its top grade, an A, in education. However, in November 2024 a ballot measure eliminated the state’s use of certain testing standards as a requirement for graduation. Future trends could take a turn for the worse if Massachusetts fails to replace these standards with new ones. 

Massachusetts has also invested deeply in the innovation economy – science, research, and technology – and it’s paying off. The state earned a B in this area, primarily due to receiving a substantial amount of venture capital funding as a share of state gross domestic product (GDP).

The Commonwealth is also among the top states for innovation industry density, meaning a larger share of the state’s workforce is working on science, technology and related industries compared to the national average.

However, this dominance has slipped over the last couple years, primarily due to a decline in the number of patents granted per capita.

Massachusetts High Costs and High Taxes Are Getting Worse

Massachusetts’ gross domestic product (GDP) is growing at one of the fastest rates in the nation, according to the latest Bureau of Economic Analysis data available through 2024. That’s one way of measuring economic success from a 30,000 foot level. But looking at several issues that most impact day to day life, Bay Staters have seen economic conditions decline.

Massachusetts has one of the 10 highest total state tax burdens in the nation, earning the state a C- in taxes. Diving deeper, the tax burdens that most directly impact individuals and families grew substantially compared to last year.

Individual income taxes paid per capita were more than $3,400 according to this year’s report card, compared to roughly $3,100 previously. Property taxes paid by the average household rose to more than $4,000, compared to roughly $3,800 previously.

Even as inflation cools across the nation, the Commonwealth remains one of the most expensive states in the country. While residents earn higher-than-average personal income levels, the state’s overall cost of living still earns it a C+ grade. Even worse, latest data from the Bureau of Economic Analysis shows Massachusetts has the third highest cost of housing nationwide, and second highest cost of utilities. In fact, Census Bureau data shows the share of Massachusetts residents owning a home dropped roughly 4% from last year.

Businesses Are Suffering Too

It’s not just people feeling the strain, it’s the business environment too. This year, Massachusetts’ business dynamics category got a D, primarily due to Bureau of Labor Statistics data showing there were roughly 25% fewer businesses opening than closing last year, and a relatively low number of new business applications. Compare that to states like North Carolina, which has a roughly similar openings to closings rate, as well as Florida and New Hampshire which are seeing more businesses open than close.

A recent study from the Pioneer Institute confirms this trend: the rate of new business formation has dropped from being 2nd highest in the nation to dead last since 2020. In fact, Pioneer finds most states’ rate of new business formation grew over this period.

Economic Pressures Are Pushing Residents To Leave

On net, more people are choosing to leave Massachusetts than others choosing to move here – leading to a multi-year outmigration crisis. This recent trend of net loss in residents gives Massachusetts a D+ in the migration category. Massachusetts experienced the fifth-largest net outmigration in the country this year. The share of taxable income leaving the state also increased compared to last year. 

Recent MOA polling shows high cost of living and taxes were top concerns for a vast majority of Massachusetts voters, and a Suffolk University/Boston Globe poll shows they’re driving residents to consider moving to other states.

Meanwhile, the top states receiving former Massachusetts residents are those with lower cost of living and tax burdens. States like Florida, New Hampshire, and North Carolina all have comparatively lower tax burdens combined with lower cost of living, especially for necessities like housing.

Conclusion

Like any student from time to time, Massachusetts is doing well at some things while also falling behind at others. By keeping track of our progress in all areas over time, MOA’s goal is to highlight top strengths while using data to inform how we solve our weaknesses. 

There are a lot of reasons to live in Massachusetts, and the Commonwealth’s strengths in education and innovation deserve recognition. However, the latest Report Card shows that rising costs, high taxes, outmigration, and a challenging business climate are limiting the state’s potential. To strengthen long-term competitiveness, policymakers should focus on reducing barriers to living, working, and investing in Massachusetts while retaining talent and encouraging business growth.