Maine versus New Hampshire X

Scott Moody – Chief Economist

So in the past few days we’ve seen a quite a bit of “gnashing of the teeth” over Amity Shlaes’s Bloomberg article.  A few days ago we had Kit St. John of the so-called Maine Center for Economic Policy send in a letter-to-the editor to the Portland Press Herald a few days ago yapping about how “taxes don’t matter.”  Now, today, the Portland Press Herald publishes an op-ed from a Massachusetts professor– Jeff Thompson who is an assistant research professor at the Political Economy Research Institute at the University of Massachusetts at Amherst–also discussing how “taxes don’t matter.”

After looking them over, I have to wonder if either Kit or the good professor even bothered to read Amity’s article.  OK, yes, Amity does talk about the difference in tax burdens in 3 of the 16 paragraphs in the article.  But it was hardly the focus of the piece.

In fact, both Amity and I agree with the critics one one point . . . its not all about the taxes.  That’s why the rest of Amity’s article was a comparison of the private sector share of the economy versus the public sector share.  What matters first and foremost is government spending (federal, state and local).  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.  One conduit for this crowding-out is, obviously, higher state and local taxes. However, it doesn’t end there.  For example, how do Maine businesses feel about competing for labor against the state government which pays vastly higher benefits?  Its no wonder why Maine is in the midst of “lost decade” for job growth.