1,700 fewer Maine residents. 1,800 fewer workers in our labor force. 3,800 fewer jobs. A $500 million reduction in personal income. A $300 million drop in state GDP.
That, according to an economic impact report from the Maine State Economist’s office, is the worst case scenario (compared to baseline projections) if the universal home care initiative on the ballot this fall passes. In other words, these figures indicate how Maine’s economy would fare under the home care initiative, compared to what forecasters think would happen in the absence of the policy change.
And that’s just the first year (2019) of the new program’s implementation. Over the next five years, the program’s negative effects on most metrics grow rapidly — the cumulative losses in real GDP, for example, could approach $1 billion by 2023.
The best case scenario estimates, while less severe, still predict serious harm to Maine’s economy. For example, the report estimates that private employment would drop (again, relative to baseline projections) in 2019 by a minimum of 2,600.
Estimating the effects of a policy change as sweeping as the one contemplated in the initiative is no easy task, and the report has taken fire from the Left for perceived methodological shortcomings, specifically its assumption — corroborated the by the Maine Revenue Services’ technical analysis of the bill’s language — that the new taxes would create significant marriage penalties for thousands of Maine couples.
To make its predictions more robust, the analysis is based on four different scenarios with different levels of behavioral response resulting in an offset to the additional tax revenues generated. A range of potential behavioral responses were considered, including:
- individual taxpayers who change their filing status from married filing joint to married filing single
- taxpayers who change residency
- sole proprietorships that change to corporations
- taxpayers who reduce their tax liability through various means, including income sheltering and delaying or reducing capital gains
- employers who modify compensation packages
- workers who reduce hours or leave the labor force
It’s worth noting that changes in the migration patterns of high-income Mainers in response to the tax increase are partially responsible for these effects, something MHPC has consistently warned about. From the report:
“Personal income losses relative to the baseline forecast in this analysis are largely the result of the out-migration (and reduced in-migration) of higher income taxpayers. This population is highly mobile and for the wealthiest and most mobile, the proposed tax represents a significant increase in tax liability.”
The report concludes:
“Maine’s economy is currently experiencing growth across all of these measures. In 2017, Maine’s population grew at the fastest rate in more than a decade and private non-farm employment reached a record high level. The results of this analysis, with losses relative to the baseline forecast, represent a slowing of future growth, particularly in the first year of the program.”
Bottom line: don’t believe the falsehoods being propagated by left-wing groups like the Maine People’s Alliance. This initiative would ravage our economy at a time of encouraging but precarious growth.
For all you policy wonks, I urge you to read the full study.
