Rich states, poor states MHPC

Rich States, Poor States: Maine Gets Richer, but Still Among the Poorest

April 19, 2016 Posted by Joe Horvath - No Comments

In the recently-released ninth edition of the Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index rankings report, Maine earned its highest all-time rank of 38. While near the bottom of the 50 states, the mark is commendable in that it is the first time Maine has escaped a ranking in the 40s. Additionally, since its all-time low of 48 in 2011, Maine has improved every year, save one. Because of work done by the Maine State Legislature and Governor Paul LePage to reduce tax burdens on individuals and businesses, Maine is becoming more competitive in the New England region. The work, however, is far from over if Maine wishes to be as economically attractive as New Hampshire, Massachusetts, Rhode Island or the higher-performing states across America.

As a matter of tax and fiscal policy, Maine is headed in the right direction and individual citizens are beginning to recognize it. Of the eight states that combine to form the New England/Tri-State Area, only two saw more Americans move into their borders than out of their borders in 2014. One of those states was New Hampshire, which levies no personal income tax, sales tax or estate tax, and is in the midst of an ongoing reduction on business taxes. The other was Maine, a state that is, and should continue to, emulate New Hampshire’s fiscal policies. When individuals move into a state, they bring with them income, jobs, entrepreneurship and commerce.

Maine, which significantly cut taxes on net during the 2015 legislative session, is one of 17 states that qualified for the most recent State Tax Cut Roundup. As noted in the report, “the 2015 session underscored Governor Paul LePage and the Maine [State] Legislature’s commitment to phasing down or perhaps eventually ending the state’s income tax, once and for all.” The recent estate tax exemption increase, which is reflected in the Rich States, Poor States “Recently Legislated Tax Changes” variable, helps incentivize more individuals to move in. However, because the state still levies an estate tax, it is hurt by the binary “Estate/Inheritance Tax” variable. That is perhaps one area for continued improvement, especially given recent death tax reforms around the country.

For those who see the need for limited government, free markets and federalism, noting the relationship between economic competitiveness and domestic migration patterns is vital. The free market performs better than government because it has proper signals to which many individual participants can respond. Profit and loss inform decisions. The problem with government is the insulation so many of its activities have from these signals. Rich States, Poor States creates an analog for profits and loss by treating domestic migration patterns as signals by which governments can gauge their success. As such, when a state sees individuals responding to their economic climate by moving in (or not moving out), then that can reasonably be seen as one measurable signal of success.

Admittedly, population migration is merely one signal, but it is also a good goal in and of itself. Additional residents, as noted above, improve a state’s economy. An improved economy consisting of greater population can, without increasing tax burdens on the individual, increase the amount of money in government coffers (if one is so inclined to be concerned about such a thing). It should also be noted that Maine, while enjoying an increase in domestic in-migration in 2014, has seen decreases in five of the past 10 years.

In recent decades, the Northeast has largely adopted the “tax-and-spend” playbook, and has not succeeded as a result. Northeast economies are weaker and individuals are moving out, taking their businesses and productivity with them. If Maine wishes to continue bucking the Northeast trend and become even better-suited to compete in the future, the march to eliminate the economically harmful personal income tax must continue, and reductions to the corporate income tax must be made. However, if recent legislative actions are indicative of a trend rather than an aberration, then Maine may very well be on its way to rivaling New Hampshire.