Commentary

Cutting Cronyism and Taxes are a Maine Source of Opportunity

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Sad news struck Maine’s once-thriving paper industry recently. Only months after Verso Corp. was forced to file for bankruptcy, Madison Paper Mill reported that it would close shop, eliminating more than 200 jobs in the process. In Maine’s current economic climate, businesses must cope with changing markets, but more can be done to diversify the state’s economy. Part of the solution should involve tax relief for all hardworking taxpayers. However, in order to provide responsible and sustainable tax relief, policymakers need to consider efforts to right-size state spending and also eliminate cronyism from state government.

In the 2016 edition of its Maine Piglet Book, the Maine Heritage Policy Center (MHPC) continued its work to highlight “the most egregious waste, fraud and [abuses] of the Maine taxpayer.” For more than a decade, the Maine Piglet Book has been a model for state-based organizations concerned with fiscal irresponsibility.

In 2014, Maine spent an eye-popping $14,654 per minute and the state’s next biannual budget will spend nearly $300 million more than the last. According to MHPC, an average Maine resident’s income was a little less than $27,000 in 2013. That means it takes less than two minutes to spend what a typical Mainer makes in a year. Some of the projects bloating Maine’s balance sheet include: $1.8 million for Maine Efficiency Trust and $2.1 million above what DHHS requested for social safety net funding. Municipalities are slated to receive an additional $35 million toward municipal education efforts, but because many have already set their education budgets, that money isn’t directed to a specific purpose, encouraging wasteful spending.

Because of the spending, Maine’s personal and corporate income tax rates are among the nation’s worst, as is its property tax burden. Maine also levies an economically damaging death tax, which harms small family businesses and farms. Only 18 states impose estate or inheritance taxes, and even deep blue New York and Rhode Island recently reformed theirs.

By utilizing the “tax-and-spend” playbook, Maine is limiting its economy. From 2004-2014, Maine’s cumulative growth in gross state product trails the nation, ranking 49th, and non-farm employment growth is 48th. Despite less than ideal fiscal policy, though, there is hope. According to MHPC’s Piglet Book, spending has slightly decreased since FY 2011 and recent tax reform reduced the top marginal personal income tax to 7.15 percent.

Maine faces a critical juncture. The state must decide whether to pursue a free market, broad-based reform approach that benefits all, or the kind of centrally-planned recovery that yields little growth and picks winners and losers. There is no guarantee, though, that the right decision will be made. In a 2012 interactive article titled “The United States of Subsidies,” the New York Times reported Maine to be among the nation’s most active state-based grantors to individual companies, giving away 4,840 grants since 2004, although most originated much more recently. In 2013, Maine’s total tax carve-outs to individuals and businesses, exceeded $1.178 billion.

A plan to adopt high tax rates, spend more than necessary, and lure businesses with crony carve-outs has time and again been tried and failed. A cautionary tale that can benefit Maine comes from Connecticut Governor Dannel P. Malloy, a Democrat, who after years of doing things the wrong way, lost the corporate headquarters of his state’s most prominent business, General Electric (GE).

Connecticut even tried to offer a special deal to keep the company in-state. GE, though, chose Massachusetts’ better economic policies, which is consistently reflected in its significantly higher Rich States, Poor States economic outlook rankings. At a recent community forum at UConn’s law school, Malloy said “I’ve raised taxes multiple times. It’s not working.” Malloy also reportedly said spurring economic growth is what’s necessary.

Becoming friendlier to business and commerce will encourage individuals and businesses to move-in and make Maine their permanent home. Long-term economic solutions will not be found in a new government program or a crony carve-out, but through increasing opportunity for hardworking taxpayers across the board.

About American Legislative Exchange Council

Jonathan Williams is the Vice President of the ALEC Center for State Fiscal Reform. Joel Griffith is the Director of the Tax and Fiscal Policy Task Force at the ALEC. Learn more about ALEC at alec.org.

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