Tax Policy in Maine

Tax Policy in Maine

January 28, 2008 Posted by J. Scott Moody - No Comments

In case you missed it, I had an op-ed in Sunday’s Portland Press Herald discussing the economic evils of double-taxation.
Also, on the same day, John W. Porter had an op-ed titled “Are taxes really high in Maine?” which is filled with misleading information about Maine’s tax burden. He makes that point that, according to the Tax Foundation, Maine has only the 36th highest federal tax burden–one of the lowest in the country. Therefore, when you look at federal, state and local taxes, it’s not that bad in Maine. (FYI, I authored the mentioned Tax Foundation study for several years when I was with TF).
However, the federal tax angle begs the question: “Why is Maine so relatively poor?” New Hampshire has the 7th highest per capita income while Maine is 39th. Maine’s poor economic performance can not be due to federal taxes since there is no difference in the federal tax code between Maine and New Hampshire. Rather, Maine’s lower federal tax burden is generally a consequence of Maine’s failed state and local tax policies, not a cause.
Mr. Porter also fails to mention that New Hampshire’s total tax burden jumps from 49th (state and local only) to 29th when federal taxes are taken into account. Why isn’t New Hampshire suffering under this much higher tax burden? Again, a state’s federal tax burden is generally a consequence of one’s economic situation, not a cause.
This is not to say that federal taxes do not distort local economies–they certainly can, especially because the federal tax code is not indexed for difference is the cost of living. However, given the many similarities between Maine and New Hampshire, differences in the federal tax code/burden are much less important to economic development than Maine’s own home-grown high tax burden–despite what Mr. Porter says.