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The Tax Foundation is the nation’s
leading independent tax policy
research organization. Since 1937,
our research, analysis, and experts
have informed smarter tax policy
at the federal, state, and global
levels. We are a 501(c)(3) nonprofit
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The Impact of Individual Income Tax
Changes on Economic Growth
• Research almost invariably shows a negative relationship between income tax
rates and gross domestic product (GDP).
• The mobility of higher-skilled and higher income earners in an open economy
works against the effort of progressive state and local tax systems to achieve
long-term redistribution of income.
• The likelihood of an employed head of household obtaining a better job
within a year is higher when a tax system’s progressivity is reduced.
• A decrease in a tax system’s progressivity is associated with an increase in the
real growth rate of wages.
• Changes in rates of private investment and private consumption are highly
correlated with tax changes. Measures of the magnitude of the investment
and consumption changes vary, but the relationship between the variables
is consistently negative: as tax levels or rates decrease, investment and/or
consumption increases and vice versa.
• Cuts to marginal tax rates are highly correlated with decreases in the
Timothy Vermeer Senior Policy Analyst
TAX FOUNDATION | 2
This November, Massachusetts voters will decide whether the state’s constitution should be
amended to transition the Bay State from a flat rate individual income tax to a graduated rate system
through the imposition of a 4 percent surtax on income over $1 million. The question before voters is
a significant one, with meaningful implications for Massachusetts’ economy.