Commentary

Empty Analysis and Flawed Statistics: MPA Struggling to Grasp Impact of Question 2

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He strikes again.

Mike Tipping, the communications director of the Maine People’s Alliance (MPA), may be the king of tweeting with minimal context. On April 24, Tipping sounded off in response to a tweet by a WMTW political reporter asking viewers how much annual income one must earn to be considered “wealthy” in Maine.

Tipping’s tweet cited a visual created by the Maine Center of Economic Policy (MECEP) that showed Maine’s top earners are still paying a lower marginal tax rate than middle-income Mainers after the passage of Question 2 last November.

It was incredibly emblematic of the shoot first, ask questions later mentality his organization is so fond of. They love pushing new bills and referendums with vague language on Maine voters without assessing the real implications of their proposals (by the way, when is the MPA going to stop citing MECEP studies? MECEP regularly contributes to the MPA’s smorgasbord of PACs and ballot question committees. Citing them really hurts your credibility, Mr. Tipping).

Question 2 imposes a 3-percent surtax on incomes earned over $200,000 to fund k-12 public education in Maine, effectively making Maine’s top income tax rate the second highest in the country and the highest in New England. Additionally, the surtax ensures owners of mom and pop shops pay a higher tax rate than corporations in Maine.

Tipping and the MPA do not want Mainers to know how devastating this is to our economy. They hide behind the “will” of voters who are already experiencing buyer’s remorse on a number of ballot questions passed last cycle.

The Maine Office of Policy and Management (OPM) released a pair of reports in 2016 that perfectly exemplify the many challenges Question 2 poses for Maine’s economy. One report outlines how high earners respond to income tax hikes and includes an economic forecasting model that shows trends of out-migration by Maine’s top earners as a result of Question 2.

This does not bode well for our state. Those who file their taxes as pass-through entities, meaning business profits are passed onto the business owner as individual income, generate thousands of jobs in Maine. Approximately 11,000 of the state’s 16,000 top earners file as pass-through entities, meaning the jobs they create are at risk of being lost. High earners have the flexibility and resources to move their businesses elsewhere or declare residency in another state to dodge surtaxes like the one imposed by Question 2.

In total, it’s estimated that Maine will lose 4,050 private sector jobs by 2021 as job creators begin to flee.

Additionally, according to a 2016 report produced by the Maine Revenue Service, the top 1-percent in Maine already pay 25-percent of the state’s income taxes. To put it simply, you can’t levy income taxes on high earners once they leave Maine, and they’re already paying their fair share.

The second OPM report compares Maine’s income tax burden with other states in New England. Talented married couples that bring in incomes over $200,000 will pay astronomical amounts in taxes compared to Maine’s closest competitors. What’s stopping a business owner from packing up and moving a few miles over the border into New Hampshire where there is no individual income tax? Nothing.

The report also cites an analysis by Morgan Scarboro of the Tax Foundation that reads, “As states try to foster economic growth through business-friendly tax environments, they should keep in mind that individual income taxes should be considered alongside corporate income tax rates. This tax increase would ultimately make Maine less competitive.” The Tax Foundation produces an annual report that measures the business tax climate of each state, and after Question 2’s passage, Maine’s rating drops from 30th to 45th.

Considering the demographic challenges facing Maine, our state needs to attract talented workers with pro-growth and business-friendly policies that encourage entrepreneurship and relocation to Maine. Question 2 does just the opposite.

So, while Mr. Tipping’s tweet is accurate, it lacks the necessary context to understand the complexity of this issue. Conservatives in Augusta are up in arms over Question 2 because it will encourage tax flight and result in the loss of jobs, revenue and talent in Maine. This is why they refuse to endorse any biennial budget agreement that includes the surtax attached to Question 2 and have sought productive alternatives to meet state-level funding requirements for public education.

These facts are hard to argue, which is why context is so important (and missing from Mr. Tipping’s tweet).

About Jacob Posik

Jacob Posik, of Turner, is a policy analyst for the Maine Heritage Policy Center. He can be reached at jposik@mainepolicy.org.

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