Business Tax Breaks in Massachusetts

August 6, 2012

What follows is a factsheet summarizing the major findings of our complete report, Business Tax Breaks in Massachusetts.

In its effort to encourage long-term economic growth, Massachusetts does a variety of different things: it offers high-quality education, supports job training, builds roads, and operates public transit. It also provides tax breaks for businesses.

Over the last fifteen years, the amount of money spent on special business tax breaks has increased substantially. In FY 1996, Massachusetts spent $342 million on special business tax breaks. In FY 2012, it spent $770 million—more than twice as much (adjusted for inflation).

By special business tax breaks, we mean tax breaks that: 1) apply to businesses, and 2) have as their most basic rationale the effort to bolster economic development (other kinds of business tax breaks include those designed to minimize double-taxation and those which mirror the federal tax code).

Another way to measure the growth of these special business tax breaks is by comparing them to the size of the economy as a whole. Between FY 1996 and FY 2012, the economy grew about 40 percent. At the same time, spending on special business tax breaks grew by over 100 percent (it more than doubled). Consequently, Massachusetts was spending a larger share of its economic resources on special business tax breaks at the end of this period than at the beginning. How much larger? We find that when you adjust in this way for economic growth, the increase in spending on special business tax breaks is 60%.

To be clear, these tax breaks do not account for a very large portion of our economic resources. They are small relative to the size of the economy, and also small relative to the total cost of the tax cuts Massachusetts has enacted since FY 1996. Still, spending on special business tax breaks has grown, and the rate of growth is high compared to other major facets of state government.

By way of comparison, the amount of money being spent on Education, Local Aid, Human Services, and Law & Public Safety was either flat or declining, when adjusted for economic growth. Health Care costs did increase, but at roughly half the rate of special business tax breaks.

Our full paper, Business Tax Breaks in Massachusetts, describes these findings and others in greater detail.