Business group warns rise of remote work threatens Mass. economy

Ahead of this fall’s elections, Mass. Taxpayers Foundation lays out threats to state’s economic health and warns against “Massachusetts exceptionalism.”

A new report from the Massachusetts Taxpayers Foundation warns that high housing costs and the rise of remote work could imperil Massachusetts' economic vitality.Joanne Rathe

It’s well understood that Massachusetts is an expensive place to live and do business. But a new report from a prominent business group underscores how those high costs could imperil the state’s economy in an era of widespread remote work.

The Massachusetts Taxpayers Foundation issued the report on Friday in advance of this fall’s elections, including a ballot question to adopt an income tax surcharge on personal earnings over $1 million. The report is also being released as the fate of a $1 billion slate of tax cuts, including reforms to the state’s relatively burdensome estate tax, remains up in the air on Beacon Hill. The foundation’s report was funded in part by the Massachusetts Competitive Partnership, a group of CEOs from many of the state’s largest employers. (Both organizations have opposed the income-tax surcharge, known colloquially as the “millionaires tax.”)

The bottom line: High costs pose a much bigger threat to Massachusetts now than they did before COVID-19 changed the way companies and their employees think about remote work. The Taxpayers Foundation report cites particular concerns with an outmigration of talent that is already underway, an exodus that the report links to the high cost of housing and other living expenses. The report seeks to puncture what it calls “a belief in Massachusetts exceptionalism,” that this state will always be home to the best and brightest.

People and companies have far more flexibility with where they can be located, the report argues, and Massachusetts policymakers need to confront this new reality.

The report pulls from a variety of sources, pointing to home prices in Massachusetts that rank third in the US behind Hawaii and California, and rents in Greater Boston that are among the nation’s highest. It also highlights Census data showing that Massachusetts lost residents to other states during the height of the pandemic in 2020 and early 2021, and that Boston was among several high-cost cities whose population shrank during that time.

Executives say they’re finding it increasingly hard to recruit people to work in Massachusetts, and the high cost of housing is often a deal-breaker. For many in the business community, this issue is considered to be the biggest threat to the state’s economic future.

It isn’t just real estate. Massachusetts, according to the report, ranks high for unemployment insurance costs (top in the country), commercial electricity rates (fourth), and per-capita corporate tax collections (fourth).

“The report just reaffirms, I think, what anyone who is talking to business already knows: The environment is challenging and getting more challenging,” said Jay Ash, chief executive of the Massachusetts Competitive Partnership and a former economic development secretary for Governor Charlie Baker.

The report singles out stats for jobs in computer systems design, a field for which Massachusetts is known. Local growth in this sector was negligible from the start of the pandemic through 2022, while the US added nearly 190,000 jobs, or 8.6 percent.

“A lot of people may say, ‘Ho hum, tell me something I don’t already know with respect to the Massachusetts cost structure,’” Taxpayers Foundation president Eileen McAnneny said. “To me, [because of] the fact that Massachusetts relies so much on its talented workforce ... the demographic trends are not in our favor.”

Among the report’s recommendations to the Legislature and next governor: reduce the duration of unemployment benefits from 30 weeks to 26 or fewer, raise the threshold for when the estate tax kicks in to well above the current level of $1 million, address the multiple problems plaguing the MBTA, pursue a mixed portfolio of clean energy that includes hydropower and nuclear power, and streamline and better coordinate the state’s workforce training options.

“We do hope this sparks a conversation among business leaders and public officials, that this factors into some of the conversations for the elections in November,” McAnneny said. “Massachusetts has been able to rely on the fact that people came here because we had a very dynamic economy, [but] we have to make sure we’re able to maintain that concentration of talent. That’s going to be much more challenging as we move forward.”