A proposed 2026 ballot question to lower the Massachusetts income tax rate from 5% to 4% would cut household tax bills across the state but also blow a multibillion-dollar hole in state finances and force significant budget decisions on Beacon Hill, according to a recent Tufts University analysis.
The report from the Center for State Policy Analysis estimates the measure would reduce the state income tax collections by 18.9% and total state tax revenue by about 10%, or roughly $5.1 billion a year by 2030. The report claims that revenue loss would more than offset gains surtax voters approved in 2022 on annual income above $1 million.
Phineas Baxandall, director of research and policy analysis at the Massachusetts Budget and Policy Center, said a revenue loss of that size would be unprecedented in Massachusetts and would likely force painful budget decisions across major areas of state spending.
“We’ve never seen anything like this before,” he said.
He compared the potential impact to the revenue collapse during the 2008-09 recession, when the state cut local aid, higher education and public health spending.
For taxpayers, the proposal would mean smaller annual tax bill, but little change in household income. The report found the median households would save about $1,230 a year, with most keeping about 1% of their income. However, the value of those savings would favor top earners with the highest incomes, who would receive cuts roughly 30 times larger than the median household, the report found.
The proposal would phase in the lower rate over three years, dropping to 4.67% on Jan. 1, 2027, 4.33% in 2028, to finally 4% in 2029. The rollout would create planning challenges for lawmakers already building future budgets without knowing whether voters will approve on such a major tax cut.
Beacon Hill is already bracing for fallout if the proposal is approved, putting pressure on the state budget and potentially blocking other tax breaks for business to delay the shortfall.
Baxandall said cuts to education-related spending could damage the state’s long-term economic position.
“It would be strangling our competitive advantage as the most educated state in the U.S,” he said.
He said surtax revenue has supported programs that residents rely on.
“We have free school meals. We have free community college, turned around the deterioration of the MBTA … We became the only state in the nation to retain its subsidies for early childhood education care.”
Proponents of the ballot question argue that the cuts will strengthen economic competitiveness, but Baxandall said reducing the commonwealth’s ability to invest in education, commerce and infrastructure would ultimately hurt the state’s business climate.
“That’s not a good place to do business,” he said.
However, supporters of the proposal argue that the tax cut will actually benefit taxpayers. Chris Keohan, the founder of CK Strategies and an organizer of the ballot question, said there is “no reason to believe that cuts will be necessary when this ballot question passes. Those threats are nothing more than fearmongering.”
He said the numbers cited by opponents account for no economic growth and fail to understand that the money back in taxpayer’s pockets “will immediately go back out into the economy, creating jobs and increasing revenues from meals, hotels, gas and the other taxes that help to fund the state budget.”
“Countless small businesses are saying that this tax cut will help them hire more employees, deal with rising costs and be the economic driver that moves our state forward,” Keohan added.
Jim Stergios of the Pioneer Institute, who authored a report in support of the proposal, compared the pushback to backlash over the approved 2000 tax cut ballot which reduced the personal income tax rate from 5.95% to 5%. He stated that in the years the tax rate decreased, revenues were often flat or higher than the previous year.
After Gov. Marua Healey publicly opposed the ballot measure, Stergios said in a statement that her claim “ignores more than a decade of runaway growth in state spending.”
Further, he said the cut would help small and mid-sized businesses and increase employment. He argued the commonwealth can afford budget cuts by “reversing the recent surge in hiring and fixing widespread mismanagement in major benefits programs — mistaken payments, overpayments, and fraud.”
Supporters also point to strong public support for approving the cut, with polls showing about 58% of respondents showing support as of February, according to The Bay State Poll, conducted by the University of New Hampshire Survey Center.
