Other States Show Tax Cuts Work

As taxpayers express concerns over high cost of living and taxes while state spending runs out of control, Mass Opportunity Alliance estimates a proposed ballot measure to reduce the state income tax would save taxpayers money and boost the economy. Critics say the change would hurt the state, but other states’ experience shows it would be beneficial to the state economy and taxpayers alike.

Beginning in 2021, more than half of all states implemented some kind of income tax cut. Within that group, several blue and “purple” states have lowered income taxes and still achieved steady growth in GDP, personal income, and household spending in the years after tax cuts.

Massachusetts is not breaking new ground by considering the same – it is a path with a demonstrated track record for positive growth.

Colorado

Colorado’s income tax cuts provide a clear example of broad public support for statewide tax relief and the economic gains that can follow. In 2020, Proposition 116 lowered the state rate from 4.63 percent to 4.55 percent, and in 2022, Proposition 121 reduced it further to 4.40 percent.

Colorado’s tax cuts led to some significant economic boosts:

• Colorado’s economy (measured by state gross domestic product, or GDP) grew by 16% ($61.6 billion) since 2019, even taking into account pandemic slowdown in 2020.
• After the tax reductions, average earnings of Colorado residents (measured by per capita personal income) grew by 13.4%, representing an increase of $7,724 over 5 years, compared to 12.7% in the period before.
• Households also saw stronger growth in spending power after the 2020 tax cut, with average consumption (measured by personal consumption expenditures) rising 15.1% compared to 11.3% before the tax cut.
• The cuts did not cause major revenue cuts or stagnation. Instead, state-collected tax revenues continued to grow after 2019 (even with the fluctuations caused by COVID) by 16% (+$2.6 billion) since 2019.

Similar to the current proposal in Massachusetts, these tax cuts were approved by a majority of voters at the ballot. The results show that Colorado households not only saw stronger income gains, but also maintained robust revenue growth, reinforcing growth across the broader state economy.

North Carolina

North Carolina launched income tax reforms in 2013, moving from one of the nation’s highest graduated rates of 7.75% to a flat tax rate that will eventually fall to 3.99% by 2027. These changes, paired with revenue thresholds to trigger additional tax rate cuts, have helped transform the state’s economy.
 
These gains not only reflect financially stronger households but also the kind of consumer-driven growth that makes a state more attractive for both workers and businesses:

• Economic growth accelerated after the state’s tax reforms, with state GDP growth jumping from roughly 1% in the five years before tax cuts, to nearly 12% ($59.1 billion) in the five years after the first tax cut in 2013, and another 19% since then.
• North Carolina’s average earnings dropped 7.4% in the years before tax reforms, but after the 2013 cuts they climbed by 14.6%, adding about $6,200 per household.
• Household spending barely grew before the tax cuts, rising just 0.4% through 2013, but jumped 11.7% in the years that followed the tax cuts through 2018, and is continuing to trend upwards.
• State revenue continued to grow following annual income tax cuts: state-collected tax revenue jumped 17%, around $4.1 billion in the five years following the first tax cut in 2013, and continues to grow annually.

Conclusion

According to recent MOA polling, support for income tax relief spans across all income levels, age groups, and political affiliations.

The experience of states like North Carolina and Colorado show that tax reform can usher in economic growth for the state and financial benefits for taxpayers. Both states improved their rankings in the Tax Foundation’s State Tax Climate Index after making major tax reforms, demonstrating that well-structured tax systems can improve residents’ lives without compromising state competitiveness.

Even neighboring Connecticut – which a decade ago served as the poster child for driving residents away with high taxes – has reversed course and lowered some of their tax rates. The Nutmeg State implemented an income tax cut at the start of 2024 – reducing the 3% rate on the first $10,000 of income for single filers (and $20,000 for joint filers) down to 2%, and lowered the 5% rate on the next $40,000 of income for single filers (and $80,000 for joint filers) to 4.5%. According to an end of the year report released by the Connecticut Business & Industry Association, the state’s GDP expanded by 2.6% one year into the tax cut, personal income grew by 5.3%, and wages increased by 5.7%.

Massachusetts is in good company in considering lowering taxes, and could benefit from some of the economic gains other states have seen in the last decade.