Tax or Treat? The Scariest Ideas For Massachusetts’ Economy

Just in time for Halloween, MassBudget released its list of 28 ways to raise taxes on the Commonwealth’s families and businesses. What could be scarier than that? 

It’s a grab bag of tax hikes that ignores residents’ top concern: The cost-of-living is rising, and taxes are a top contributor. 

Here are some of the most frightening proposals.

#1: The Ghost of Income Tax Rates Past

MassBudget proposes increasing the state’s personal income tax rate from 5% back up to 5.95%. 

If you’re having deja vu, you’re not alone. Back in 1999, the state’s income tax was 5.95%. Voters overwhelmingly approved a reduction down to 5% on the ballot in 2000.

Even at this lower rate, the state still ranks in the bottom ten states for least competitive individual taxes, according to the Tax Foundation. Raising the income tax would only worsen this position: increasing residents’ tax burden by roughly 20%.

MassBudget’s increase would overturn a clear mandate from voters and send the state back in time by decades. Voters are still very concerned about the Commonwealth’s high tax burden. Eighty-two percent of voters surveyed by MOA support reducing the state’s personal income tax rate, including a majority of voters across all income brackets. 

This tax hike would also put Massachusetts further out-of-step with other states. Since 2021, a majority of states have implemented income tax rate reductions.

#2: The Death Tax that Won’t Die

MassBudget proposes increasing the state’s estate tax, commonly referred to as a “death tax.” Currently, when a Massachusetts taxpayer dies, the state imposes a levy on all of their assets over two million dollars.

With the rate of inflation and soaring home costs, that threshold has become much easier to reach over time. It also captures the value of non-liquid assets like cars, furniture, and retirement savings, and may force the taxpayers’ family to sell off assets just to pay the tax.

It’s a complicated burden Massachusetts places on its taxpayers, and already makes the state an outlier. Only twelve U.S. states have a similar tax, and more are moving away from it. In the past decade, states including North Carolina, Tennessee, Indiana, and Ohio all repealed their estate taxes. That also includes states like Delaware and New Jersey, which maintained strong revenue growth after eliminating their estate tax laws.

A recent MOA poll found 84% of surveyed Massachusetts voters are concerned that the existing death tax has negative impacts on the economy. Roughly sixty percent support eliminating it.

#3: The California-Style Wealth Tax Specter

MassBudget proposes a “wealth tax” on high net worth individuals here in the Commonwealth. This includes taxing “unrealized gains” in the value of their assets, such as the intangible, potential value of business holdings, intellectual property, or other assets; or a founder’s shares of a company they started that does not necessarily correlate with cash on hand. MassBudget also proposes annually taxing “large pools of wealth” whether or not the value has increased and generated any income in a given year.

This proposal would make it more complicated and costly for high-net worth individuals to live in the Commonwealth. That impacts the state as a whole, because it means those individuals – who make up an outsized share of the state’s tax base – decide not to live and pay taxes here, which could hurt the state’s revenue and budget. 

It also means startup founders and other business owners may opt to launch or move companies elsewhere, eliminating potential for economic growth and job opportunities here. Massachusetts is one of the top economies for billion-dollar startups in the country. But a tax on the individuals starting these companies makes the state less competitive for their investment and innovation.

#4: Haunting Businesses Big and Small

Massachusetts’ corporate tax burden is one of the top ten highest in the country – it’s just one reason why CNBC ranked us as the second-most expensive state to do business. A recent Pioneer Institute study found business formation has plummeted over the past decade.

That didn’t stop MassBudget from proposing a slew of business tax hikes that will only make it more difficult and expensive to operate a business in Massachusetts. That doesn’t just impact business owners; struggling businesses are often forced to reduce staff hours, cut positions, or even close altogether. That means fewer job opportunities for workers across the state. 

The organization’s proposals include: 

1. Increasing the minimum corporate tax rate. 

The corporate excise tax rate currently stands at 8% on Massachusetts-based income plus $2.60 per $1,000 of either Massachusetts property for the business or taxable net worth, whichever is greater. Massachusetts also mandates a minimum corporate excise tax of $456 – whether the business made or lost money. 

2. Raising the tax rate on S-corporations, also called “pass-through” entities, which allow qualified business income to be taxed at the personal income tax rate. 

Many Massachusetts small businesses operate as S-corporations to avoid double taxation. However, the state imposes an additional “sting tax” for those S-corporations making more than $6 million in revenue, which creates extra tax liability for these businesses. Massachusetts is one of only a few states that tax S-corporations this way.

3. Expanding taxes on multinational companies that operate in Massachusetts, increasing the complexity and cost of setting up shop and creating jobs here. 

This tax is on “Global Intangible Low-Taxed Income” or “GILTI,” which many of our competitor states like Florida and North Carolina do not have. 

Conclusion

MassBudget’s tax hike wishlist is a trick, not a treat, for Massachusetts. Residents say the cost of living – partly driven by high taxes – is making it harder to stay here. Taxes are a top-cited concern for those who have already left.

Many of these proposals put Massachusetts further out of touch with taxpayers, and make us less competitive than other states who are gaining former Commonwealth residents and businesses.

We need changes that make the state a less costly, less complicated place to live and run a business.