Council in the News
Boston is a good place to start a tech company. Keeping it here is another story.
Questions about the state’s competitive standing have dominated the business discourse since voters approved the ‘millionaires tax’ in November
By Larry Edelman Globe Columnist, Updated May 12, 2023, 1:14 p.m.
For more than 70 years Massachusetts has nurtured tech companies despite its longstanding reputation as a high-tax, highly regulated, and expensive place to do business.
Digital Equipment, Analog Devices, and Lotus Development were among the trailblazers back in the day.
Today’s home-grown stars, launched around the turn of the century, include Akamai, Tripadvisor, and Wayfair.
And the startups keep on coming, companies you may never have heard of — yet.
(Not coincidentally, the Globe on Friday released its second annual Tech Power Players 50 list with profiles of the industry’s most influential and interesting leaders, financiers, and thinkers. You can browse through the ranking online or see it in the Globe Magazine.)
The tech ecosystem has thrived — attracting industry giants like Amazon and Meta — amid mounting concern that the state has become less appealing to entrepreneurs and more inhospitable to companies, whether they are emerging or long established.
And questions about the state’s competitive standing — and loss of residents to other states — have absolutely dominated the business discourse since voters approved the controversial “millionaires tax” ballot proposal in November.
The new tax — a 4 percentage point surcharge on individual incomes of more than $1 million, with the revenue earmarked for transportation and education — was a big blow to the state’s competitiveness, said Christopher R. Anderson, president of the Massachusetts High Technology Council.
“We have to reverse the trend in the business climate,” he said. “We need to treat business creators differently.”
But supporters of the tax, including some tech industry leaders, argue that the state has long lost rich residents to low-tax locales like New Hampshire and Florida, and the effect on the state will be marginal.
“Our fixation on taxes on high income is a huge distraction from what we should focus on, which is how we actually become more competitive,” said Mohamad Ali, chief executive of IDG, a Needham-based technology and data company.
That, he said, includes “how we address our high cost of living — housing, education, child care, transportation, health care, energy — the real issues driving people away and hurting our businesses.”
It’s a list that was repeated almost item by item by Anderson. There is, it seems, a lot of room for agreement.
Which is good news, since tech is pivotal to the state’s economy. The sector accounted for nearly 9 percent of all jobs in 2021, the fourth-highest percentage in the country, according to industry group CompTIA. Tech companies generated almost 14 percent of the state’s economic output, third highest among states.
But other data from the CompTIA report showed other states nipping at our heels.
While Massachusetts ranked eighth in the nation in tech industry employment, with 308,000 jobs, it didn’t make the top 10 for net job gains in 2021 or projected percentage growth over the next decade in tech jobs across all industries.
There’s no doubt that there’s a new-found desire on Beacon Hill to improve the business climate. Governor Maura Healey campaigned on a centrist platform not too dissimilar, at least fiscally, from her Republican predecessor, Charlie Baker.
The millionaires tax, now part of the state’s constitution, isn’t going away any time soon. But the Democratic-controlled House last month passed a package of tax credits and rate cuts that include three items that have long been high on the business community’s wish list.
One is a reduction in the tax rate on short-term capital gains — profits on investments held up to a year — to 5 percent from 12 percent over two years. The bill also would ease the burden of the estate tax, one of the most onerous in the country, and shift how corporate taxes get calculated from the “three factor” apportionment method to a “single sales” system for all companies that do at least some business outside of the state.
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The House bill mostly tracked proposals made by Healey. Yvonne Hao, the governor’s secretary for economic development, told me that it’s important to tamp down the “noise” created by the millionaires tax that Massachusetts isn’t competitive for business.
“That’s not the reality. . . but perception becomes reality,” she said. ”We are never going to be the best in taxes — that’s not our game,” Hao said. “But we can’t be the worst.”
Senate President Karen Spilka hasn’t said when the chamber will take up tax relief or what its plan might look like.
It’s important to note that there is more to the business climate than taxes. Massachusetts is a tech hub in large part because of its large pool of highly educated and skilled workers and the steady flow of new workers coming out of local colleges and universities.
It’s called “access to talent,” and to preserve it Beacon Hill must improve K-12 education, the community college system, and training programs that equip students with the skills required in a high-tech driven economy.
And the state must also get more aggressive on the biggest obstacles to keeping workers here: the scarcity of affordable housing and a deteriorating transportation system.
I asked IDG’s Ali: If he were to start a business today, would he do it in Massachusetts? His answer was illuminating.
“There aren’t many places in the world where I would do it. Boston is one of them,” he said. ”But as soon as you get the scale, you can’t recruit a large number of people. Starting a company here is great, but as soon as it gets big, a lot of employees would be elsewhere.”
That’s a tough dynamic to change, especially in the post-pandemic world of remote work. But it’s a challenge worth undertaking.