Massachusetts’ Tax System
How Much of the Total Taxes Collected in Massachusetts Comes from Each Tax
In fiscal year 2006, Massachusetts’ state and local general revenue totaled $52.2 billion.4 The majority of those funds — $42.5 billion or 81.4 percent — came from sources within the Commonwealth (the federal government provided the remaining 18.6 percent through such means as grants or matching funds). The $42.5 billion generated within the state is commonly referred to as “own-source” revenue as it derives most directly from the residents of the Commonwealth. This is also the funding stream over which state and local officials exert the most control.
Under the Census Bureau’s classification system, own-source revenue can likewise be separated into two categories: revenue generated by taxes and revenue attributable to fees, charges, and sources such as tuition for public higher education and highway tolls. In fiscal year 2006, state and local tax revenue in Massachusetts amounted to $30.6 billion or 72.1 percent of total own-source revenue, while fees, charges, and miscellaneous revenue equaled $11.9 billion, thus providing the remaining 27.9 percent. This report will focus on tax revenue when comparing Massachusetts to other states, since the other forms of own-source revenue are influenced in large part by state specific factors that are beyond the scope of this primer.
Figure 1 illustrates the composition of tax revenue in the Commonwealth. The single largest source of tax revenue in fiscal year 2006 were the property taxes levied by the Commonwealth’s cities and towns, which, generated 35.3 percent of total tax revenue that year. The personal income tax produced over a third — 34.2 percent — of total tax revenue in fiscal year 2006. The general sales tax yielded 13.1 percent that year, and special sales — or excise — taxes yielded 6.8 percent. The corporate income tax and other taxes (such as license taxes) were responsible for significantly smaller shares of total tax revenue — 6.1 percent and 4.5 percent respectively.
How Much of the Total Taxes Collected in the U.S. Comes from Each Tax
The composition of Massachusetts' tax revenue stands in contrast with the national picture of state and local tax revenues, as Figure 2 reveals.
Sales and excise taxes produced a larger share of total tax revenue nationally than they did here in Massachusetts. As a result, states on the whole counted on property and personal income taxes less than Massachusetts did in fiscal year 2006. These differences mean that the system by which Massachusetts generates revenue for essential public services is more equitable than most other states’ revenue systems, since sales and excise taxes tend to be particularly regressive, as will be discussed below.
However, Massachusetts has a flat rate personal income tax, which means it is more regressive than states that have low dependence on the sales tax and a progressive personal income tax rate structure.5
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