Don’t Make Massachusetts ‘Taxachusetts’ Again

Massachusetts is home to arch-progressives like Sen.

Elizabeth Warren

and Rep.

Ayanna Pressley,

but many voters here remember the 1980s, when the state was derisively known around the country as “Taxachusetts.” A series of antitax popular initiatives in the 1980s and tax cuts enacted by Gov.

William Weld

in the 1990s reduced Massachusetts’ overall state and local tax burden considerably. Proposition 2½, which limits both the levels and growth of property taxes, was approved by voters in 1980 and remains sacrosanct. Among states with income taxes, Massachusetts’ flat 5% rate is on the low side. In neighboring Connecticut and New York, the highest earners pay 6.9% and 10.9% respectively.

What was Taxachusetts has become New England’s economic dynamo. Since the 2007-09 recession, wage and job growth in Massachusetts has outpaced the nation. Sustained economic growth produced a budget surplus exceeding $5 billion in the past fiscal year, which makes it doubly odd to ask voters to approve a tax hike now.

Connecticut’s economic arc illustrates the consequences of high taxes—especially in cold, expensive states that residents and businesses find easy to leave. In the late 1980s, Connecticut was a comparatively low-tax state, ranking 17th in the nation in overall tax burden.

Under Gov.

Lowell Weicker,

a liberal Republican turned independent, a flat income tax of 4.5% was introduced in the 1990s, and in subsequent decades Connecticut politicians couldn’t resist adding brackets and raising rates. Now the state’s overall tax burden is the second heaviest in the nation and the economic fallout has been disastrous. From 2008 to 2020, Connecticut ranked 49th in wage growth and 48th in job growth. By 2020, it was one of only three states where employment levels hadn’t recovered to pre-Great Recession levels.

Connecticut’s raft of tax hikes hasn’t translated into overflowing tax coffers. In the year after its 2015 income tax hikes, revenues generated by the state’s 100 largest taxpayers actually fell 45%. From 2008 to 2022, Connecticut’s state budget grew by 37%, while Massachusetts’s pro-growth policies fueled a doubling of the public fisc.

The Bay State’s budget surpluses are the product of a competitive tax environment that fuels private-sector activity. High taxes chase off businesses and jobs and undermine the goals that progressive taxers say they want to achieve via public investments. Economic growth lifts all boats, including the ship of state. The extra money is proving hard for even Massachusetts’ legislators to spend.

One might ask why state legislators, who put this constitutional amendment on the ballot, are so determined to return to the bad old days of Taxachusetts. The proposed tax, according to a Tufts University estimate, would generate $1.3 billion annually—a fraction of the surplus generated by economic growth in the past fiscal year. That tax revenue would come at a steep cost. Because the amendment’s definition of income includes capital gains and “pass-through” income from entities taxed via individual returns, such as partnerships, sole proprietorships and S corporations, the proposed tax would primarily affect retirees and small businesses.

While Massachusetts’ stable tax environment attracts residents fleeing higher-tax states like New York, New Jersey and Connecticut, those gains constitute a fraction of the net outflow of Massachusetts’ people and wealth to lower-tax states, especially New Hampshire and Florida. Even without a tax hike, the exodus of wealth from Massachusetts accelerated sixfold over the last decade. In the aftermath of the pandemic, states are competing for talent. In the past two years, 25 states have enacted or implemented individual and corporate tax cuts.

Haunting November’s vote is the ghost of the 1980s antitax movement. In the waning days of the state legislative session, Gov.

Charlie Baker

announced that economic growth has brought the state too many blessings: Overflowing coffers triggered, for the first time in 35 years, an obscure 1986 law (itself passed via initiative petition) that caps state tax revenue growth at the rate of statewide wage and salary growth.

So, this fall, as voters head to the polls to decide whether to pass the largest tax hike in the state’s history, they will do so knowing that the state is at the same time rebating more than $3 billion to 3.8 million Bay State households. House Speaker

Ronald Mariano

says he may push to undo the 1986 law responsible for those rebates. Try that and see what the electorate does.

For 30 years, Massachusetts has believed that a good economy is the best way to fund government programs. But alas, big government always wants more. If taxpayers lose in Massachusetts, then Florida and New Hampshire will win—and a firewall against economic stupidity will fall.

Mr. Stergios is executive director of Pioneer Institute.