Rich States, Poor States: High taxes hinder Maine's economic outlook, performance

The American Legislative Exchange Council (ALEC) on Thursday released the 6th edition of Rich States, Poor States – a comprehensive review of states’ fiscal policies designed highlight pro-growth policies for lawmakers around the country.

The study, written by Arthur B. Laffer, Stephen Moore, and Jonathan Williams, uses a host of economic variables to gauge the relative success of state-level policies.

The ALEC-Laffer State Economic Competitiveness Index provides two rankings – economic performance and economic outlook. The performance ranking is a backward-looking measure based on three variables: state gross domestic product, domestic migration, and non-farm payroll employment. The outlook ranking is a forward-looking measure based upon 15 state policy variables, including sales and income taxes, pension liabilities, workers’ compensation costs, and right-to-work laws.

In this year’s index, Maine ranked 41^st for economic outlook, meaning only 9 states have poorer economic forecasts than Maine. While Maine would certainly rather have Utah’s ranking (1st) or even New Hampshire’s (27th), the new ranking shows a positive shift from 2012, when Maine ranked 47^th. For economic performance, Maine ranked 38^th, a decline from 23^rd in 2012. According to the study, Maine’s post-Great Recession recovery has been slower than the national average, which explains the poor performance ranking.

Here are some other highlights from the report, which is available for download here.

Income Taxes: Maine has one of the 9 highest income taxes in the Union, according to the study, placing it in the company of states like Hawaii, New Jersey, California and New York. High income taxes, the populations of the 9 high income tax states have grown at a rate of 6 percent over the past decade, while states with no income tax, including Florida, New Hampshire and Texas, experienced 15 percent population growth.

(Recommended: The Fiscal Costs of Maine’s Demographic Winter…)

According to the study, the inequality of population growth among states is a product of individuals fleeing high-tax, low-growth environments for states with lower taxes and higher job growth. “The massive disparity in inter state migration represents a national referendum of sorts, as citizens vote with their feet to depart to states that best service their interests,” the authors wrote.

The authors of the study cite Democratic lawmakers’ proposal to raise Maine’s minimum wage to $9.00 per hour by 2016 as a policy that will inhibit economic growth. “By discouraging employers from hiring inexperienced and unskilled workers, minimum wage laws create a barrier to entry into the labor market, which disproportionately impacts the poor.”

Cross Border Shopping: The study notes that the New Hampshire House of Representatives has passed a budget that would increase the cigarette tax 30 cents per pack. The authors write, “Businesses and states officials in Massachusetts, Vermont, and Maine are the only ones who should welcome this onerous tobacco tax hike. Since New Hampshire has a lower tobacco tax rate than its neighboring states, taxpayers often cross the border to purchase cigarettes at a competitive rate.”

(Recommended: The Great Tax Divide: Maine’s Retail Desert vs. New Hampshire’s Retail Oasis…)

Right-to-Work: The study also confirms what supporters of so-called right-to-work laws have long believed: population, personal income, and gross state product are higher in states where forced unionism is prohibited. According to researchers, 22 right-to-work states grew their populations at a rate of 13 percent from 2001-2011. During the same time personal income grew at a rate of 56.9 percent. Conversely, in 28 states where workers can be compelled to join a labor union as a condition of employment, population grew at a meager 6.8 percent, while personal income grew at a rate of 43.6 percent.

Texas Gov. Rick Perry, writing in the foreword to Rich States, Poor States, summarizes the importance of pro-growth policies: “No matter which state you’re in, by letting people keep more of their money, limiting government interference, and maintaining fiscal discipline, your state can create an environment that fosters opportunity and prosperity for its citizens, while expanding the engine for America’s renewed economic growth.”