Response to Charles Lawton

Response to Charles Lawton

August 29, 2010 Posted by J. Scott Moody - 2 Comments

Charles Lawton’s article in Sunday’s edition of the Portland Press Herald made a number of points that I wanted to chime in on.  First, he states:

Ignoring the fact that well more than 10 percent of New Hampshire’s income is earned by commuters working outside the state, it is still interesting to play out the analogy.

This implies that somehow comparing NH and ME is not appropriate–though I wonder what he thinks about NH versus RI.  Critics of NH versus ME comparisons always throw out the “Boston Commuter” angle as if that means something.  They never give a reason for why people commute from NH to Boston beside its “proximity.”

Well, Kittery is not all that far from Boston so why isn’t it a boom-town, especially with all that ocean-front property?  According to Google Maps, Manchester is 48 miles from Downtown Boston while Kittery is 60 miles . . . is 12 miles really a deal-breaker and don’t we have the Downeaster from Portland (and soon Brunswick) to level the playing field?  And what about tele-commuting?

I just don’t find the proximity angle all that convincing . . . here’s why.  I spent 12 long years working in Washington, D.C. and anyone who commutes to D.C. must decide where is the best place live–Northern Virginia or Maryland.  Now, proximity to either destination is exactly the same since D.C. is squarish–though MD may actually have a slight advantage since 3 of the 4 sides of D.C. border Maryland.  Yet, if you ask someone, the answer will inevitably be Northern Virginia.  Northern Virginia has the booming suburbs all the way out west to Leesburg (36 miles) and south to Fredericksburg (52 miles) to prove it.

Why the difference?  Virginia has a far better business climate(#1 according to Forbes) due, in part, to lower taxes.  New Hampshire attracts residents from Boston because of its better business climate which, yes, also includes lower taxes.  Its certainly not for better weather or ocean-front property.

That being said, Maine gets its fair share of income “from away” as well, as Lawton points out, from transfer receipts.  The chart below shows various types of income for NH and ME for 2009.  The “adjustment for resident” income represent income “from away” such as out-of-state commuters.  It is true that NH receives $3.6 billion more from out-of-state income sources.  However, when it comes to transfers, Maine receives $2.7 billion more “from away” or, more specifically, Uncle Sam.

In the end, NH’s “from away” income is still from private sector sources, be it from Boston or Mars, but ME’s “from away” income is from public sources.  My analysis shows that higher levels of public sector income, no matter the source, suppresses overall economic performance by crowding-out the private sector in the competition for labor and capital.

The chart shows one important clue in the final type of income shown called “Proprietors Income” which comes from sole proprietorship and partnerships–the fertile ground where entrepreneurship springs forth.  NH earns $1.2 billion more from proprietors income than does ME.  Only a bigger private sector and a better business climate can explain away that difference.

Rather than casually dismiss our differences with NH, Maine policymakers should learn from those differences.  Maine’s public sector can, and should, be scaled back starting with reforming Medicaid and reducing the state workforce . . . areas where NH and ME represent the two opposite ends of the policy spectrum.  The money saved could be used to improve Maine’s business climate, especially for entrepreneurs, by implementing immediate expensing, reducing the capital gains tax rate and eliminating the estate tax.

Different Types of Income in Maine and New Hampshire