The High Tech Agenda

Massachusetts at a Crossroads: Ensuring Our Competitive Future

Massachusetts has long been recognized as a global hub of innovation, from world-class universities, research institutions, and renowned healthcare systems to the thriving start-ups and business enterprises that call it home. These strengths, combined with a high quality of life, have made Massachusetts an attractive place to live, work, start and grow a business, and raise a family. However, as we look to the future, the Commonwealth faces complex challenges that threaten our position as a premier center of innovation.

Residents, employees, and businesses have been making decisions for the past 18 months that show Massachusetts is not as competitive as it once was. The high costs of living and doing business, coupled with policies that are less favorable to job creation, are driving people and businesses to other states. If we want to preserve our status as a leader in innovation and maintain the quality of life that has defined Massachusetts, we cannot afford to be complacent. The High Tech Council is committed to addressing these challenges head-on by crafting and executing strategies, ensuring a prosperous future for all.

Massachusetts Falls in State Rankings

While Massachusetts excels in areas like education, technology, and innovation, it struggles in critical categories that impact business and livability. According to CNBC’s 2024 Top States for Business rankings, Massachusetts ranks in the top ten for Education (#2), Technology and Innovation (#3), Access to Capital (#9), and Quality of Life (#9). However, the Commonwealth falls into the bottom ten for Cost of Living (#48), Cost of Doing Business (#49), and Infrastructure (#44). Our overall ranking plummeted to #38 in 2024 from #15 in 2023, signaling that our strengths are no longer enough to counterbalance our growing weaknesses.

Although external factors play a role, some of our economic challenges are self-inflicted, such as the high cost of living and unfavorable tax and business regulations. Forbes ranks Massachusetts as the second most expensive state to live in, and the 2024 Tax Foundation State Business Tax Climate index placed us at #46, a steep decline from #34 in 2023. The high cost of doing business is exacerbated by the highest employer Unemployment Insurance costs in the country, rising healthcare expenses, and a 40% increase in Paid Family and Medical Leave contributions in 2024. The message is clear: Massachusetts is losing ground in the competition for jobs and talent.

The Consequences of Our Declining Competitiveness

The erosion of Massachusetts’ competitive position should be a wake-up call for everyone in the Commonwealth. The decline in our rankings is not just a number on a chart; it has real and far-reaching consequences. The correlation between our quality of life and the competitiveness of our business climate is a delicate balance that has historically fueled the state’s success. A thriving business environment fosters innovation, investment, and job creation, driving economic growth and generating the tax revenue needed to invest in critical areas like healthcare, education, environmental sustainability, workforce training, and other services that make Massachusetts a great place to live. When the business climate deteriorates, the state’s quality of life is put at risk.

The financial toll is significant. A study by Boston University and Pioneer Institute estimates that outmigration cost Massachusetts $4.3 billion in adjusted gross income and $214 million in tax revenue during the 2020-21 tax year. If current trends continue, the state could lose nearly $1 billion in tax revenue by 2030. These trends are already reflected in concerning shortfalls in the state’s revenue collections. After years of budget surpluses—including an unprecedented revenue surplus in FY22 that resulted in nearly $3B being returned to taxpayers—revenue collections have fallen short of budget projections for the last two fiscal years. Declining revenue collections in FY24 necessitated a downward revision of revenue expectations and mid-year budget cuts, and revenue still came in below the revised benchmark for the year.

As part of this initiative, we are running a dedicated LinkedIn campaign highlighting key data points from these Fact Packs. We encourage you to follow along as we share insights and trends from each sector, showcasing Massachusetts’ unique position and the opportunities ahead. Be sure to follow our LinkedIn page to stay informed and engage with these critical discussions.

Under the MassVision2050 banner, the Council is advancing policy initiatives that support the growth of the state’s innovation economy to create jobs, attract private investment, and provide reasons for job-creators and workers to stay and grow in Massachusetts.

The Council is taking a particular leadership role in identifying strategies to establish Massachusetts as the top state for innovation and the adoption of artificial intelligence across multiple industries, including healthcare and financial services. Aligned with the Healey Administration’s focus on advancing applied AI in its economic development plan, the Council and our members have contributed to the Governor’s AI Strategic Task Force and advocated with the Legislature for $100 million in funding to support applied AI initiatives.

At the urging of the Governor and business leaders, the Legislature has indicated a willingness to return to the State House to finalize this essential economic investment bill this year. The Council will continue to advocate for these critical investments.

Addressing the Challenges to Sustain Growth & Innovation

We cannot achieve these goals without addressing the fundamental issues driving people and businesses away. It is critical that the state takes steps to address the areas in which Massachusetts is a negative outlier, including the high cost of living and doing business, as well as our low rankings for business friendliness. Without meaningful efforts to modernize our tax policy to reflect new economic realities—such as resident and business migration and the rise of remote work—the Commonwealth’s ability to compete with other states will continue to erode.

While the tax reform legislation enacted last year took some steps to address the Commonwealth’s outlier status, it only marginally changes how Massachusetts compares with other states. We are still one of only 12 states with an estate tax, a key differentiator from the states to which many Massachusetts residents are moving. With the addition of the graduated income tax to the state’s constitution in 2022, Massachusetts now has the 7th highest top marginal income tax rate in the country. As the MassCPAs study makes clear, these tax policies are driving high-income taxpayers out of the state, with 64% of respondents citing the graduated income tax as one of the primary reasons behind their clients’ decisions to leave Massachusetts. It is critical that we address this, or the Commonwealth is in danger of entering a downward spiral from which it will be difficult to recover.

Deep Dive on CNBC’s Massachusetts Rankings