Taxes take a bite out of Maine incomes

Many Maine families struggle to make ends meet in one of our nation’s slowest growth states. A leading expert on tax and fiscal policy shows that Maine’s public policy over a long period of time has caused this slow economic growth. This finding is from a recent report, “Maine’s Path to Fiscal Redemption,” released by the Maine Public Policy Institute.

With Maine’s working families paying payroll tax, excise tax, sales, tax, gas tax, property tax and income tax directly or indirectly in the cost of goods, Mainers are suffering from high taxes. The research of Dr. Richard K. Vedder shows that “over the last quarter of the century, the overall state and local tax burden has risen more in Maine than in any one of the other 48 contiguous American states.”

Imagine, Mainers have had more of their money taken for taxes at a faster rate than any other of the lower 48 states. Is it any wonder that Maine has a higher poverty rate than our low- taxed neighbors in New Hampshire? According to the United Way State of Caring Index released earlier this year, 10.6 percent of Mainers are in poverty vs. 7.7 percent of the people in New Hampshire, which takes one of the smallest tax bites out of the family budget of any state.

To compound the challenge of paying all these taxes, the burden is worsened as our economy suffers as well. Dr. Vedder found when he studied economic growth the 10 highest taxed states vs. the 10 lowest taxed states over a 20-year period, “real per capita income over the two decades 1977 to 1997 rose dramatically on average in the 10 lowest taxed states. High taxes [lead to] low growth.”

Not surprisingly, he found that personal income grew at a much slower rate in the 10 highest taxed states. It is clear that high taxes are stunting our economic growth, as well as hurting Mainers’ personal income and job prospects.

If it seems that taxes have been getting worse lately, you’re right.

“Most of that increase has occurred after 1990” according to Dr. Vedder. The rate at which your money is transferred out of your family budget into state government coffers is speeding up.

You might wonder which tax is the worst offender. Dr. Vedder found that “the tax that was responsible for almost all the growth in tax burden over the past generation was the personal income tax.” And more specifically, Maine’s highly progressive income tax is “far more destructive of economic growth than other taxes, such as consumption levies, or even property taxes,” according to Dr. Vedder. A progressive tax takes more of each dollar as you earn more.

Beyond the misery of high taxes and the slow job growth it brings, families are losing their children to states with more enlightened tax policy. Most other states leave more money in people’s pockets than in Maine and Dr. Vedder studied the effects of taxes and moving.

He looked at the patterns of population changes over the last 10 years, comparing the 41 states with an income tax, to the nine states without an income tax. He found there is an untold story of human migration in the United States during the 1990s.

“Over 2,800,000 Americans (net movement in the opposite direction) moved from the states that taxed income to the states that did not,” according to Dr. Vedder.

He concluded by predicting that if Maine continues with its policy of high and raising taxes, “your economy will almost certainly continue to fall behind that of other states – a brain drain of human migration will be accompanied by a loss of physical capital resources as well.” He said, “reduced reliance on the income tax is a must” that “reducing property taxes would be desirable, but won’t give as much ‘bang for the buck’ as reducing the income tax.”

These suggestions are a win-win for Maine families, businesses, the economy, and most importantly, the young people who are the future of our state. Citizens have taken matters into their own hands and voters will most likely see three grass-roots tax referendums on the ballot next fall. The people of Maine are ready to move forward with tax reform and we hope the next administration and all of Maine’s leaders join us.

Betsy P. Chapman, of Hampden, is chairman of the board for the Maine Public Policy Institute.