Maine Against the Grain

The Wall Street Journal reports that tax reform is coming from an unexpected place: Maine. A new law rids the state of its progressive tax system, which carried a top rate of 8.5 percent, to be replaced with a 6.5 percent rate applying to just about everyone. Those making above $250,000 will still have to pay slightly more—6.85 percent.

As a result, Maine, previously ranked seventh on the list of highest taxed states, will drop to 20th. Democratic Governor John Baldacci said of the new tax legislation:

We're definitely going against the grain here. We hope these lower tax rates will encourage and reward work, and that the lower capital gains tax brings more investment into the state.

Hopefully Maine's neighboring northeastern states will soon follow suit.

Read full article here and complete tax reform bill here.

Comments

[Kyle Jordan]

They have to be doing something stupid to offset this, right?

There's no way a genuinely good thing is just being allowed to happen here, right!?

[Scott]

Money quote:

One question is how Democrats in Augusta were able to withstand the cries by interest groups of "tax cuts for the rich?" Mr. Baldacci's snappy reply: "Without employers, you don't have employees." He adds: "The best social services program is a job."

Now why is that sooooooo hard for most politicians (and a lot of people) to understand?

[Mike in PA]

I, too, am suspicious about the hidden details, but here's hoping this is a resounding success. If this works as expected, perhaps we can see other states follow suit.

[ChicagoTom]

Now why is that sooooooo hard for most politicians (and a lot of people) to understand?

Because it seems to be based on the assumption that employers will somehow take those extra dollars and give them away in the form of wages instead of just pocketing them.

That assumption is usually wrong.

[Kevin]

Because it seems to be based on the assumption that employers will somehow take those extra dollars and give them away in the form of wages instead of just pocketing them.

Not the assumption at all. The assumption is that people with money, who can afford to start and/or fund a business, would rather live in a state that doesn't try to confiscate every dime of profit they make. Notice the phrase "brings more investment into the state."

[JB]

ChicagoTom,

Many businesses use profits to expand and hire more people.

Maybe you should do less assuming and start your own business.

[FrBunny]

Because it seems to be based on the assumption that employers will somehow take those extra dollars and give them away in the form of wages instead of just pocketing them.

Exactly. That's why Walton's Five and Dime is still just a small sundries shop in Bentonville: 'cause of all the profits in his pockets.

[DADIODADDY]

This is a gag story right? There's no way Democrats would allow this.

[Sean W. Malone]

You know Tom...

The other bit of this that I never get about people who make the point you did - Where exactly do you think people are "pocketing" the added money?

My guess: BANKS!

So here's the Q&A that I'll do myself, so you don't have to:

What do banks do with saved money? "Why, they loan it out to other people, often at a 9:1 leverage"

What's that do for society? "It means people can get loans to start new businesses and buy cars & houses and things."

How is that good? "New business create new wealth by creating new products, or increasing the supply of existing products - thus lowering the cost and raising the standard of living for everyone! Plus, it inherently lowers unemployment."

Man, those questions weren't that hard to answer. ChicagoTom: Rich people are not Scrooge McDuck. They don't have vaults of hoarded gold taken out of the system... In fact, only about 5% of all "money" in the system is in the form of printed, tangible dollars anyway.

[domoarrigato]

Because it seems to be based on the assumption that employers will somehow take those extra dollars and give them away in the form of wages instead of just pocketing them.

That assumption is usually wrong.

Which is why businesses never expand or hire new people, and soon no jobs will exist in the US at all unless we can eliminate the profit motive. Wait...

[brotherben]

George Bailey explained it nicely when the folks tried a run on the savings and loan.

[Ethan]

They have to be doing something stupid to offset this, right?

I don't know if it's stupid, but the tax rate cut is offset by an expansion of the sales and use tax to include a lot more things, such as auto repairs. Some business owners who provide the services now subject to tax are upset about the change.

[Russ R.]

"I don't know if it's stupid, but the tax rate cut is offset by an expansion of the sales and use tax..."

In an economy plagued by overspending and underemployment, it might make sense to shift some of the tax burden from income to consumption.

[Jason]

This is a total canard-- the tax "reform" now means that a wide variety of service-oriented business will now need to integrate a complicate and unpopular variety of taxes into their systems, then pass them onto their customers.

What's worse, while a cursory glance suggests "reform", the reality is that the average Maine person will actually save little or nothing in income taxes with this plan-- which in some cases will be offset by the increase costs in services directly related to these changes.

[Paul]

Hopefully Maine's neighboring northeastern states will soon follow suit.

Negative. The surrounding states will merely complain like their European Union bretheren complain about lower-taxing eastern european nations.

[Kevin]

Rich people are not Scrooge McDuck.
Nice!

While we are on the subject, people like ChicagoTom must never have owned a business, or known anyone who has. There is this mode of thinking, where Business Owner=Rich guy with unlimited funds out to screw everyone else.

[guy in the back row]

Because it seems to be based on the assumption that employers will somehow take those extra dollars and give them away in the form of wages instead of just pocketing them.

Why should they give away their money at all? They can trade their money for goods and services.

[John-David]

I'll be really disappointed in ChicagoTom doesn't come back to this thread. I'm dying to see how he defends that statement.

[Flyfish]

Of course they raised sales taxes on everything in sight and added sales taxes on services, this is a net tax increase, it's just hidden. Augusta never lowers taxes, they just play shell games.

[Some Guy]

Is it just me, or is that an insanely high state tax rate? PA is just a hair over a flat 3%.

[Brett Stevens]

Translation:

We want to benefit from a brain drain of smart people from other states, including Vermont, and then we'll raise rates again.

LOL,
Maine

[Sean W. Malone]

I actually don't agree with the idea of leveraging at all, but the funny thing about it is... if ChicagoTom was right, and all the business owners just "pocketed" all the tax savings (which from the look of it won't even be that much), then there'd actually be about in the range of 5-15 times more investment power available for capital development and (*shudder*) consumer spending... as compared with the businessman just spending it himself on labor or supplies, since he can't do any leveraging with his money at Home Depot.

So maybe ChicagoTom should encourage the "hoarding" instead.

[pmp]

This story is nice. Good for Maine. However, the place where it would really make a difference is at the Federal Level.

25% Federal tax for every form of income. (I guess that doesn't include certain bonds.)

First $12,000 in income per person in the household is tax-free.

(BTW, this might make Maine better than New Hampshire, which lacks income or sales tax but has property taxes through the roof.)

[Flyfish]

re: "We want to benefit from a brain drain of smart people from other states, including Vermont, and then we'll raise rates again."

You assume Maine has jobs that we could "brain drain" people into, we don't. Even when the economy is good, it rots in Maine thanks to the policies of this prevailingly Democrat dominated state government. We're raising up an entire state of burger flippers, sheet changers and convenience store clerks to better service those who wish to visit this outdoor theme park.

[JD]

Sean W. Malone - Actually, even if rich people did just lock up their gold in vaults, while this would probably be the worst thing they could do for everybody involved, it would still have the effect of shrinking the money supply and making everybody else's dollars worth more.

Some Guy - oh man, if you think that's high, I recommend you not look at New York. You'll have a coronary.

[Hank]

"Hopefully Maine's neighboring northeastern states will soon follow suit."

Voters in NH (no income tax on wages), MA (5.3%), and CT (5%) hope not, I'm sure.

Maine's "reform" eliminates all itemized deductions, replacing them with a small "household credit" that is phased out for single taxpayers beginning at around $47,000. The phaseout creates an effective marginal rate of 8%. And we get new sales taxes on goods and services.

That's what passes for tax "reform" here in Maine. But it makes for good press releases.

[Some Guy]

First $12,000 in income per person in the household is tax-free.

I think that's a bit much. Although it gives a better incentive for people who actually have a good income to breed, which is an improvement.

[Flyfish]

re: "BTW, this might make Maine better than New Hampshire, which lacks income or sales tax but has property taxes through the roof."

My family is all in NH (Keane, Dover, and Rochester). they pay a "high" property tax that's actually about the same as mine in Maine when adjusted for property value. I pay far more in taxes than they do, it's just theirs comes in a single bill and unlike our sales tax, it is federally deductible.

[mantooth]

Flyfish - If it's so terrible, you could always leave.

/Ex-Mainer living in the South.

[Sean W. Malone]

JD... Assuming most rich people even have big piles of gold... Which, they don't. And I think we all know that it's no fun to roll around in a big pile of dirty $10 bills or a silo full of quarters... No, only the svelte feel of real .999 gold will do.

[Rich]

How *do* legislators make up the numbers in these codes? I suspect it's by having a few drinks and ... "Well, OK, then, let's say 7.26% for $3018 and below, 7.79% for $4244 and above, over 22, I mean 25, months. "

[kinnath]

Because it seems to be based on the assumption that employers will somehow take those extra dollars and give them away in the form of wages instead of just pocketing them.

That assumption is usually wrong.

The Democratic philosophy: most people are inherenly selfish and evil; so the only way "good" things will happen is if the government takes taxes from the people and spends the funds on society's behalf.

Just a bunch of fucking pessimists . . . .

[Flyfish]

re: "Flyfish - If it's so terrible, you could always leave."

I live here on purpose and don't intend to leave, but as a fiscal conservative I harbor no illusions, Maine is a high tax socialist enclave run by Democrats.

My comments are intended to keep some clarity in the discussion; the original article in the WSJ is poorly researched, this is a tax increase disguised as a tax cut; yes the income tax goes down, but sales taxes will now apply to everything including vehicle maintenance, haircuts, not just trivial stuff like lift tickets.

[ChicagoTom]

Which is why businesses never expand or hire new people, and soon no jobs will exist in the US at all unless we can eliminate the profit motive. Wait...

Right. Every business who sees their profit margin get fatter not because of actual growth in their business but by a tax cut expands their workforce. None of them just keep the profit. or in the case of publicly traded corporations, none of them just give those profits to share holders via dividends?

This is the assertion you are going with? Really?

So maybe ChicagoTom should encourage the "hoarding" instead.

I'm not encouraging or discouraging anything. Nor am I vilifying pocketing those profits (which some people inexplicably seem to be wrongly inferring).

I am merely pointing out the flaw in the "tax cuts = more jobs" canard. That isn't necessarily true and in a case where the tax rate is being cut by a percent or two but the business isn't necessarily growing it is definitely not true.

The Democratic philosophy: most people are inherenly selfish and evil; so the only way "good" things will happen is if the government takes taxes from the people and spends the funds on society's behalf.

You've got to be pretty retarded to infer this from my statement. Or arguing with the caricatures in your head.

[ChicagoTom]

The other bit of this that I never get about people who make the point you did - Where exactly do you think people are "pocketing" the added money?

Mr. Malone, since you apparently didn't actually get my point. The rest of your comment is pretty worthless.

Maybe you should try a literal reading of my comment rather than trying to attack what you believe is my head?

My point was a very simple one. Many of the libertarian assertions aren't always true. That's why people "don't get it"

[kinnath]

ChiTom, what, perchance, is actually wrong with the owners of a business keeping their profits rather than sending them to the government in the form of taxes?

[kinnath]

Nor am I vilifying pocketing those profits (which some people inexplicably seem to be wrongly inferring).

oops, need to read everything before posting I guess.

[ChicagoTom]

ChiTom, what, perchance, is actually wrong with the owners of a business keeping their profits rather than sending them to the government in the form of taxes?

Nothing. Where did I say there is something wrong with taking profits?

What is wrong is assuming that those profits will be used to hire more people. It MIGHT, but chances are, unless the business is growing anyway. (and if they are growing they would have to expand the workforce regardless of the tax rate)

[ChicagoTom]

This :

It MIGHT, but chances are, unless the business is growing anyway

Should read:

It MIGHT lead to that, but chances are, unless the business is growing anyway, it won't.

[Sean W. Malone]

Actually ChicagoTom, I believe I made it quite clear that in either case more economic activity will ensue, which typically means more jobs.

There are a few possibilities, he could:

1. Buy something fun or necessary for himself, encouraging production of fun or necessary stuff and increasing profit in some other line.
2. Pay off his debts - freeing up some capital to be loaned out again.
3. Save the money/hoard, also increasing the available capital in the system for loaning to other people.
4. Pay bonuses to employees or hire new ones.

If he picks option #4, then his employees now have their run of options #1-3 with the money.

This does mean an increase in jobs overall, or at least an increase in overall productivity - just not always in the same line or location that you expect. But increased overall productivity is good for everyone everywhere, since the goal of this game is to increase the amount of stuff in the world that makes life great until there's more than enough to go around.

To paraphrase Walter Block: The goal shouldn't be "full employment", it should be "full leisure time" anyway.

[ChicagoTom]

So here's the Q&A that I'll do myself, so you don't have to:

What do banks do with saved money? "Why, they loan it out to other people, often at a 9:1 leverage"

The purpose of the financial markets is to efficiently allocate capitol, correct?

But that's not what out financial markets are doing are they? Instead they are becoming the biggest growth sector of our economy.

Why? Not because they are efficiently allocating capitol to entrepreneurs.

[Seamus]

I, too, am suspicious about the hidden details, but here's hoping this is a resounding success. If this works as expected, perhaps we can see other states follow suit.

If that ever happens, the remaining high-tax states (helped by countless pundits at places like Slate and Salon) will denounce the "race to the bottom" and call for federal legislation to remove the comparative advantage the tax haven states enjoy.

[JIMV]

This is simply BS and theater...read this thread

http://www.asmainegoes.com/content/perry-we-have-history-lowering-taxes

As Maine Goes is the best political blog in Maine

[Shorter ChicagoTom]

That wasn't a stalking horse! It was merely a pony, you hotheaded libertarians.

[Forty-Two]

Keep the faith, FlyFish!

signed,
a Portland resident

[prolefeed]

I am merely pointing out the flaw in the "tax cuts = more jobs" canard.

Really. Because not every business owner will immediately lower prices due to competitive pressure after a tax cut, then cutting taxes (while cutting spending, too) won't create more jobs? That's your theory?

So, if you double the tax rate in a state, and ramp up government spending to match, it won't have any adverse effect on the economy?

[Mike]

Governor Paterson attempted to explain this when he was trying to make some sound budget choices with the New York state budget.

He was shouted out by the SEIU and other interest groups; when he explained that taxing the rich would make them leave (this was before billionaire entrepreneur Thomas Golisano announced his move to FL to save $13.8k/day in taxes) and was insufficient to close the deficit, the groups be demanded that the rich be taxed even more.

Congratulations, Maine.

[Enough About Palin]

"They don't have vaults of hoarded gold taken out of the system"

RC does.

[Enough About Palin]

"I am merely pointing out the flaw in the "tax cuts = more jobs" canard"

You'r right. That's a canard. The correct formula is "tax cuts = more jobs created or saved"

[domoarrigato]

But that's not what out financial markets are doing are they? Instead they are becoming the biggest growth sector of our economy.

Why? Not because they are efficiently allocating capitol to entrepreneurs.

I think you are about two years late on the news of expanding financial sector profits, Chi Tom.

In any case, what is your assumption that the markets do NOT efficiently allocate capital based on? Moreover, how do you think government diktat will be more efficient?

[James Anderson Merritt]

Flyfish: Tax-increase disguised as "tax (cutting) reform" is what the Demos in charge of Sacramento are trying to do in California, too: Expansion of sales tax to cover services, redefinition of "sale" to allow more property to be revalued under Prop. 13 property-tax restrictions, institution of carbon tax. It goes on and on. The pressure for these "reforms" has grown since voters rejected higher taxes last month, which were intended to mitigate some of our deficit-spending problem here. I hope that pressure can be resisted effectively, but time will tell.

[Dave Stoll]

headlines in today's Bangor Daily News
-AUGUSTA, Maine - Transportation officials' recent decision to scrap 75 percent of the paving projects planned for the next two years due to budget cuts means deeper rim-bending potholes and more under carriage-scraping frost heaves for drivers throughout the state.

for a state that relies on tourism, unpaved roads are not going to go over too well with visitors....

[jr]

"You'r right. That's a canard. The correct formula is "tax cuts = more jobs created or saved""

Shit, I can claim that there sunspots give rise to jobs being "saved". I haven't seen one sound method of determining the jobs being saved by a particular even, but apparently Obama has.

[Sean W. Malone]

Obama knows more than you JR... in fact, he seems to know more than the billions of individuals living around the world all combined do.

[Mainer]

Grew up in Maine. Loved the state. Have watched it change from a place where food stamps were an embarrassment people shrank from using to a place where many people actively seek government welfare. Taxes went from low to high to outrageously high given the low salaries in Maine.

Since I didn't make my money in Maine, I refused to pay the taxes and moved elsewhere. I go back every so often and just shake my head at how much things have changed for the worse. Productive people in Maine are hunted down for their tax dollars; Maine prides itself on how good and effective its tax collection system is.

Given the high rate of taxes and the minimal amount of services a person like me receives for all that confiscated wealth, there's no way I'd ever willingly submit to Maine's tax laws again. I'm just one more in a long, long line of people who have left Maine because of the taxes. Love the state, hate the government.

[Bob Smith]

Maine doesn't sock it to you only on the tax front. Their health insurance regulations make it one of the most costly states in which to buy it, which is rather amusing looking at salaries in Maine.

[Jonas]

There's a part of me that's wondering if Maine's doing this just because they know things are going to be going downhill and they want to be able to blame it on lower taxes...

[debt settlement]

you can't blame low taxes. F*** you gov for trying to make citizens pay more

[Nike Dunk High Women]

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