In Fiscal Year (FY) 2011, Massachusetts collected $35.8 billion in state and local taxes. While this is an impressive sum of money, it tells us little about whether or not the average Massachusetts taxpayer can afford this level of taxation.
As shown in the charts below, Massachusetts’s state and local tax burden (tax collections divided by personal income) was the nineteenth highest in the nation for FY 2011 at 10.3 percent—or 1.5 percent below the national average of 10.5 percent. Massachusetts’s tax burden has grown 33 percent to 10.3 percent in FY 2011 from 7.7 percent in FY 1950.
Massachusetts’s tax burden relies heavily on the income tax with a high individual income tax burden (3.3 percent, 4th highest), and corporate income tax burden (0.55 percent, 6th highest). Offsetting the income tax is a low sales tax burden (1.4 percent, 42nd highest), and all other taxes burden (1.2 percent, 48th highest). Interestingly, their low sales tax burden is likely due to the tax competition provided by sales-tax-free New Hampshire.
Of course, Massachusetts’s tax burden would be significantly higher if it were not for the enactment of Proposition 2 ½--which was inspired by California’s Proposition 13. Proposition 2 ½ limits property tax revenue to 2.5 percent of assessed value of all taxable property and the growth in property tax revenue cannot exceed 2.5 percent.
As a result, Massachusetts’s property tax burden declined significantly after Proposition 2 ½ went into effect in 1982. In fact, between FY 1983 and FY 1981, the property tax burden fell by -25.9 percent to 3.9 percent in FY 1983 from 5.3 percent in FY 1981. It has remained in the 3 percent range ever since.
Note: FY 2012 state and local tax data from the U.S. Census Bureau will not be available until later in 2014 because FY 2012 is part of their comprehensive “Census of Governments” that is done every 5 years (on years ending 2 and 7). Rest assured that Key Policy Data will post the FY 2012 as soon as it becomes available.
J. Scott Moody has nearly 20 years experience as a public policy economist with a specialty in tax policy and has over 180 publications. He has worked for numerous national and state-based think tanks such as the American Conservative Union Foundation, Federalism In Action, Tax Foundation, Heritage Foundation, and The Maine Heritage Policy Center.