Massachusetts’ fiscal competitiveness index has improved slightly over the past year, moving from fifth worst to 10th worst in the nation, but watchdogs say it’s still far too low and is driving people out of the state .

The Tax Foundation, a national watchdog group, raised the Bay State’s tax standing from 46th last year to 41st this year. State Fiscal Competitiveness Index 2025a ranking that compares state tax systems.

Rebranded from Fiscal climate index of state businessesthis year’s report, released Thursday, ranked individual income taxes, corporate taxes, sales, use and excise taxes, property and wealth taxes, and unemployment insurance taxes.

“Individual income taxes, property taxes and UI taxes” left Massachusetts in the top 10 nationwide for competitiveness, the report’s authors wrote.

As last year, the authors criticized Massachusetts voters for the approval Modification of the fair shareor the so-called “millionaire’s tax”, in the November 2022 election – incomes over $1 million are taxed at 4%.

The amendment “(dismantled) the state’s previously competitive single income tax … making Massachusetts less attractive to productive households and businesses,” the report said.

Before the millionaire’s tax went into effect, Massachusetts had already dealt with it taxpayers fleeing at a high rateat the cost of billions in “adjusted gross income,” IRS data showed over the years.

Massachusetts had fifth largest income loss due to internal migration in 2022at a cost of about $3.9 billion, according to data reported by the Internal Revenue Service in July.

Chris R. Anderson, president of the Massachusetts High Tech Council, which advocates for a competitive business climate, pointed out how a September poll found that 80 percent of residents agree that state taxes are too high.

“Oppressive taxes are not just a concern of the business community,” Anderson said in a statement Thursday. “This is a quality of life issue for everyone in the Commonwealth. … The long-term consequences are not hypothetical: Unless we turn the tide, we will continue to lose talented residents, families and entrepreneurs to states with more competitive taxes.”

Massachusetts’ overall tax system is also hampered by a lack of first-year spending, which the Tax Foundation says “disincentivizes investment in the state.”

The main factors behind collapsing taxation are the nation’s tenth-worst income tax rate of 4.54%, fifth-worst property tax rate of 3.93%, and third-worst poor ranking of unemployment insurance, at 3.97%, according to Fiscal Foundation figures.

New Hampshire is the only New England state to make the top 10 for best scores, at 6, which the Tax Foundation credited lawmakers there with “imposing only a narrow tax on interest and dividend income.”

Paul Diego Craney, a spokesman for the Massachusetts Fiscal Alliance, pointed out that “the poor grades are a direct result of bad decisions made at the State House” under Gov. Maura Healey.

“If Massachusetts wants a playbook on how to be competitive and affordable, look no further than New Hampshire and Florida,” Craney said. “These states do not have the taxes that Massachusetts levies on its taxpayers. The only way Massachusetts is going to find its way out of this economic mess is by eliminating some of these taxes.”

Florida ranked fourth best in the country, which the Tax Foundation report said was due to its lack of an individual income tax. The study also found that “the absence of a major tax is a common factor among many of the top 10 states.”

Wyoming and South Dakota ranked first and second best, respectively, with neither state imposing an individual or corporate income tax.

Craney said Massachusetts’ 6.25 percent sales tax rate is “the only anchor keeping the state from sliding worse.” The rate is 20th best in the country.

Healey has been trying to fix the devastating tax system since he took office in January 2023. A $1 billion-a-year tax cut law that took effect as the calendar moved into 2024.

The package cut the tax on short-term capital gains from 12 percent to 8.5 percent, a business-backed move that angered progressives who argued it gave the wealthy a break. The compromise cost the state $561 million in fiscal year 2023 and $1 billion a year starting in fiscal year 2027, according to the bill’s own projections.

It also included increases in the cap on the rental deduction, a tax credit for a dependent child, a disabled adult or a senior, and the statewide cap on a housing production program. The bill excluded properties valued up to $2 million from the property tax, allowing a flat credit of $99,600.

But state leaders must do more to lower the cost of living and do business for small employers, argued Jon Hurst, president of the Massachusetts Merchants Association.

“High property taxes drive up our housing costs,” Hurst said in a statement to the Herald, “and high sales and income taxes eat into disposable income for our working families, leading to lower sales on Main Street.

“Excessive regulations increase operating and employment costs for small businesses,” he added, “especially in health insurance premiums and payroll taxes.”