In Fiscal Year (FY) 2016, Massachusetts collected $43.9 billion in state and local taxes—or $6,436 for every man, woman, and child. 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?
To better answer this question, this analysis will calculate Massachusetts’s tax burden relative to the private sector. Ultimately, it is the private sector that creates new wealth and income. A high tax burden means a state is hobbling its private sector relative to other states and reducing their long-run economic growth potential.
As shown in Chart 1, Massachusetts’s state and local tax burden (tax collections divided by private sector personal income) was the twentieth lowest in the nation for FY 2016 at 13.4 percent—or -6 percent below the national average of 14.3 percent.
#Massachusetts state and local #taxburden in FY 2016 was the 20th lowest in the nation at 13.4%— -6% below US average of 14.3% http://bit.ly/2FX9C8F @keypolicydata #MApoli #MAleg #MAsen #MAgov #PolicyData (click to tweet)
As shown in Chart 2, Massachusetts’s tax burden has increased over time by 47 percent to 13.4 percent in FY 2016 from 9.2 percent in FY 1950.
#Massachusetts state and local #taxburden has increased 47% between FY 1950 (9.2%) to 2016 (13.4%) http://bit.ly/2FX9C8F @keypolicydata #MApoli #MAleg #MAsen #MAgov #PolicyData (click to tweet)
To put Massachusetts’s tax burden into perspective, let’s compare it to size of major industries in the state (as a percent of private sector income). As shown in Chart 3, Massachusetts’s 13.4 percent tax burden is greater than these combined industries: manufacturing (8.4 percent), educational services (3.9 percent), and utilities (0.6 percent).
#Massachusetts state and local #taxburden > retail, construction, utilities, and educational services http://bit.ly/2FX9C8F @keypolicydata #MApoli #MAleg #MAsen #MAgov #PolicyData (click to tweet)
Massachusetts’s lower than average tax burden is driven by a low sales tax burden (1.9 percent, 7th lowest), and all other taxes burden (0.9 percent, 2nd lowest). However, this is partially offset by a high individual income tax burden (4.4 percent, 9th highest), corporate income tax burden (0.7 percent, 9th highest), and property tax burden (4.9 percent, 15th 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 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 1981 and FY 1983 the property tax burden fell by -27 percent to 5.1 percent in FY 1983 from 7 percent in FY 1981. It has remained in the 4 percent range ever since which is still comparatively high, but significantly less than if Proposition 2 ½ had never existed..
Of course, the tax burdens for local government can vary just as much as they do among the 50 states. As such, we have also calculated the local government tax burden for every county in Massachusetts—this includes every taxing jurisdiction within the geographic county borders whether it is a city, a special district, or county government itself.
Massachusetts has 14 counties and their local government tax burden are shown below (from highest to lowest):
Finally, don’t forget to watch our exclusive time-lapse video of state and local tax burdens over the last 66 years! See if your state has been above or below the national average?
Scott has nearly 20 years of experience as a public policy economist. He is the author, co-author and editor of over 180 studies and books. His professional experience also includes positions at the American Conservative Union Foundation, Granite Institute, Federalism In Action, Maine Heritage Policy Center, Tax Foundation, and Heritage Foundation.