New Analysis: Questions 2 & 4 Would Move Maine’s Economy Backwards

October 27, 2016 Posted by Elliot Young and Jonathan Williams - No Comments

Economic competitiveness ranking would fall from 38th to 46th under Questions 2 & 4

Between 2011 and 2016, economic reforms impressively propelled Maine from 48th to where it now ranks at 38th in economic outlook in the 2016 edition of Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index. Two ballot initiatives this fall, one that would raise the state minimum wage to $12 per hour, and another creating a 3 percentage point tax surcharge would significantly harm the state’s economic competitiveness, and could toss Maine back into the depths of economic stagnation, if approved.

Our analysis shows Maine’s economic outlook in the Rich States, Poor States: ALEC-Laffer Economic Competitiveness Index would be significantly harmed with the passage of the significant hike in the personal income tax. Passage of the income tax increase would push the state from 38 to 44 in economic outlook, putting Maine back into company with uncompetitive and opportunity-starved states like New Jersey, New York, Connecticut and California.

The measure will not only affect individuals reporting income in the state, but also many small businesses, which are set up as pass-through entities whereby profits are passed on to individuals as income. According to the Tax Foundation, pass-through businesses now earn more net business income than C-corporations, and in Maine alone, an estimated 11,450 businesses will be harmed by the measure.

Similarly, if the minimum wage initiative were to pass, Maine’s outlook ranking would also deteriorate from 38 to 44. This analysis of the minimum wage change does assume a full and immediate increase to $12 per hour. The economic decisions resulting from the change will begin to affect opportunity and entrepreneurship in the state rather immediately, making an analysis with such assumptions both valuable and necessary to understand the full scope of the issue.

Worse still, if both the minimum wage initiative and the income tax surcharge were to pass, Maine’s outlook ranking would deteriorate from 38 to 46.

Lawmakers who wish to enhance economic opportunity, promote entrepreneurship and job growth, and ensure a sound future for Maine and its people would do well to remember that policies raising the cost of doing business and of simply living and working in the state have a proven track record of failure.

Higher tax and regulatory burdens will make Maine less competitive for jobs and businesses in its region and the nation at large, and would erase years of progress in making Maine more competitive.

Elliot Young serves as research analyst for the ALEC Center for State Fiscal Reform. Jonathan Williams is the Vice President for the Center for State Fiscal Reform at ALEC. Williams is also co-authors Rich States, Poor States: ALEC-Laffer Economic State Competitiveness Index  Learn more about ALEC at alec.org.