Why New Hampshire Attracts More Wealth and Commerce than Maine
From the issues that birthed the United States to the proliferation of tax reform think tanks and taxpayer advocacy groups, the unpopularity of taxes is undeniable. Protests and white papers, however, are not the only measure by which distaste for taxes can be measured. Taxpayers, both wealthy and economically depressed, are savvy, reacting to opportunities and state fiscal policy with great consistency.
When faced with high taxes in one state, they will choose to move to another, often revealing their preference for lower taxes by their choice of new home state. While Maine is moving in the right direction, the “New Hampshire Advantage” persists, as reflected in a recent report in the Bangor Daily News.
New Hampshire, simply put, is outperforming Maine. From 2014 to 2015, the rate of growth in personal income was smaller in Maine than in New Hampshire. According to the above-referenced report, the average income of an individual among the Granite State’s top one percent is just shy of $1.2 million. Maine, on the other hand, falls into the bottom half of the country at $700,000. New Hampshire’s unemployment is also smaller than Maine’s. Maine’s gross state product grew a mere 1.3 percent in 2015, well below that of New Hampshire’s.
For all intents and purposes, Maine and New Hampshire serve as excellent examples of how state policies can yield drastically different economic results. Maine and New Hampshire are similar states. Both are New England states that share similar weather, they rely heavily on tourism and have seen slight industrial dips in recent years. Perhaps no greater policy contrast exists in the region, outside the gulf between Vermont and New Hampshire.
New Hampshire’s superior economy stems from better economic policy. It is a well-documented fact that New Hampshire levies no state income, inheritance or sales tax (although the room and meals tax placed on the state’s second-largest industry may as well be one). Maine, meanwhile, ranks in the bottom third or worse for personal income tax rates, corporate income tax rates and property tax burden.
Also, despite an ongoing dialogue, Maine’s inheritance tax is no closer to death itself. Tax Foundation research found New Hampshire taxes to be considerably less burdensome. In the most recent edition of the Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, Maine’s economic outlook, while improved, ranked 15 spots below that of New Hampshire. Because of this advantage, New Hampshire is home to more millionaires per capita than all but five other states. Maine, meanwhile, languishes in the bottom half nationally and is better than no other New England state.
While few may shed tears for a millionaire’s tax burdens, understand that when a state loses millionaires, it loses valuable revenue. The recent story of hedge fund manager David Tepper’s move should serve as a cautionary tale for state legislators: citizens can vote with their ballots and vote with their feet. Tepper chose to flee his high-tax home of New Jersey for the sunny coasts of Florida, not in pursuit of better weather, but rather a less burdensome tax code. As a result of one man’s move, New Jersey’s budget shortfall became a greater concern than ever.
According to domestic population migration research from How Money Walks author Travis Brown, Tepper-style moves are far from uncommon. Given that both Maine and New Hampshire generally impose less and fewer taxes than do the other New England states, it should be no surprise that both have pulled individuals and money from the other states, on net, in recent years. From 1992 to 2014, Maine drew a fairly impressive $1.88 billion in adjusted gross income from the other 49 states. Over the same period, however, New Hampshire gained $4.02 billion.
Between 1985 and 2014, more than 14,000 residents of other states packed their bags and moved to the Pine Tree State. New Hampshire, on the other hand, gained 51,000 individuals. Even though Maine is the only other New England state to experience net domestic in-migration during that period, it is clear that New Hampshire performed better.
Given the choice between pro-growth reforms and overtaxing to cover overspending, there is a clear winner. Connecticut recently tried to tax its way to prosperity, only to create a lagging, unattractive and uncompetitive economy. It will take the Constitution State some time before it can dig its way out. New Hampshire, meanwhile, has been welcoming to commerce and wealth, and reaps the benefits.
Facing a fork in the road this November, Maine would be wise to follow a path proven to provide greater economic opportunity for all hardworking taxpayers.