Massachusetts Shows That States Can Afford Their Income Tax Relief
My new paper on the economics and affordability of income tax cuts
In the past six years, 26 states have reduced their individual income tax rates, including 23 that cut the top (or only) rate. Notably, most of these states paid for these rate reductions by returning a portion — not all — of recent revenue growth to taxpayers. And while revenues are no longer at pandemic aid-era highs, real (inflation-adjusted) income tax collections remain higher than they were pre-pandemic. As I’ve written previously, even with tax cuts, state revenues remain high.
Of course, not every state cut income taxes. A few states did the opposite, including Massachusetts, which adopted a “millionaire’s tax” on the marginal income of high earners a few years ago. But this is a question of priorities: Massachusetts could have afforded tax relief as well.
They almost had a shot at it this year, too. Proponents of a one percentage point across-the-board rate cut secured enough signatures to put a tax-cutting measure on the ballot, but the courts spiked the measure on the grounds that a description written by the Attorney General (not by supporters) contained a misstatement.
The result is questionable. Petition signature requirements are a threshold measure to ensure that there’s enough support for a measure to place it on the ballot. The voters still decide. If the concern was to respect voters’ wishes, surely the appropriate remedy was to revise the description for the ballot rather than spiking the measure after it qualified for ballot status.
Unfortunately, voters won’t have an opportunity to weigh in this year. But the Pioneer Institute recently published an analysis I wrote of the economic effects of the proposed cut, as well as its affordability. The tax collections figures are worth highlighting. Massachusetts’ ability to afford such a reduction is clearly a question of policy priorities. Tax collections have increased 62% in real terms since 2010 and would still be up 48% if the proposed tax cut were fully in place.
I’ve also written in the past about how state income tax rates are diverging. The gap between high- and low-tax states is growing, and Massachusetts has reestablished its place among the high-tax states. But tax collections data show that it didn’t have to be this way.
To read my full paper with the Pioneer Institute, click here.
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