TAX THE RICH

There has been a lot of hoopla lately about the Maine tax rate from the Governor. If you have been reading the papers, you would have been told that Maine has a very high tax rate, second only to California’s. That sounded sort of off to me – so I did some investigation.

First – let’s get this out of the way. Yes – Maine has the second highest tax rate for people making over $200,000.00 per year. The referendum voted on in November tacked on a fourth bracket to our tax system. See the chart below.

Maine - Single Tax Brackets

Tax Bracket           Tax Rate

$0.00+                    5.8%

$21,049.00+       6.75%

$37,499.00+       7.15%

200,000.00+       10.15%

That means that 16,000 Maine residents (approximately) will pay a rate of 10.15% on their income OVER the $200,000.00 level. All Mainers pay 5.8% on the first $21,049.00 of income and it goes up from there. Now, if you lived in Idaho and had an income over a mere $10,890.00, the tax rate is 7.4%, so keep in mind that all the states have unique ways of raising revenue.

Let’s look at some of the other tax rates in the USA.

In DC, the highest rate is 8.95%

Hawaii, it’s 8.25%

Idaho, it’s 7.4%

Iowa, it’s 8.98%

Minnesota, it’s 9.85%

New York, it’s 8.82%

Oregon, it’s 9.9%

Vermont, it’s 8.95%

Wisconsin, it’s 7.65%

And in California, the highest individual income tax rate is 13.3%. Actually, in California, poor people pay a much lower tax rate that the poor folks in Maine. Check out the chart. 

In California, folks making below 30K pay LESS tax than Mainers. And until you get to the 200K mark, Mainers pay less than Californians. So – it’s not as straight forward a comparison as presented in the papers or by the Governor. 

The Governor is convinced that our tax rate is destroying our ability to attract new industry to the state. Apparently, the “job creators” get spooked when the tax rate goes over a certain level. But wait a minute…how does California do so well with such a high tax rate? California – boy, wouldn’t Maine love to have just 20% of California’s economic activity! Wouldn’t that be GREAT! All those tech companies, the film industry, the aerospace industry – and all that agriculture! Wow!

So why does California have all this economic activity? Well, California is COOL! It’s got all this cool stuff – a great coastline, tons of culture, great food, wine and awesome outdoor activities – people want to work there. Wait a minute. Maine has all that….

So, I propose that the tax rate has some effect on whether an industry chooses to locate in a particular state, but it may not be as important as the Governor wants you to think. I grew up in Fairfield County Connecticut which is right outside of New York City. For many years, companies moved out of Manhattan to Greenwich and Stamford Ct. and it had nothing to do with the tax rate. Some in depth research by the state showed that where the CEO lived had more to do with where the company moved than anything else. If you lived in Dairen or New Canaan, you moved your business to Stamford – just a short drive over the hill from your house. In you lived in Summit New Jersey, you moved your business to New Jersey.

The governors low tax plan is designed to make us competitive with Alabama or Mississippi (or Mexico), so that somebody will move a plant that builds F-150 trucks to Maine. Not only is that a pipe dream, but I know I don’t want to live in a state as poor as Mississippi. I have a better plan. Let’s convince the CEO’s of the software companies and biotech firms in Cambridge and Boston that Portland is just as hip and cool as their towns.  It’s not as crowded, their employees would have a better standard of living and they would all be closer to skiing, hiking and some of the best sailing on the East Coast. This should not be a hard sell – I’m sure they have all vacationed here at least once.

Still worried about those “job creators”? Don’t be. A report generated by the Congressional Research Service, a non-partisan department of the US legislature, stated very clearly in 2012 that low taxes has little or no effect on economic activity. Here is a quote from the report:

“There is not conclusive evidence, however, to substantiate a clear relationship between the 65-year steady reduction in the top tax rates and economic growth. Analysis of such data suggests the reduction in the top tax rates have had little association with saving, investment, or productivity growth. However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. The share of income accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% due to the 2007-2009 recession. The evidence does not suggest necessarily a relationship between tax policy with regard to the top tax rates and the size of the economic pie, but there may be a relationship to how the economic pie is sliced”.

Are you wondering why you have not heard of this 2012 report? Because the Senate Republicans suppressed it. Tax the rich – it won’t hurt and will most likely help our economy and allow more people to thrive. Not just rich people – all people.