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Free ME

Jun 14, 2016


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Read the full Free ME study in pdf


Note: I created Free ME when I was the CEO and Chief Economist of The Maine Heritage Policy Center as a long-term plan to restore economic prosperity in Maine on a county-by-county basis. While the plan will likely never become reality in Maine, the idea of a county-by-county plan to achieve prosperity can and should be implemented in other states. To that end, I am posting the Free ME plan here on Key Policy Data to make sure the idea will live on.

 

Executive Summary

 

Maine has a government dependency problem. According to the Maine Heritage Policy Center’s extensive “Fix the System” study on Maine’s welfare system, nearly 1 out of every 3 Mainers is on welfare.[1] While reforming Maine’s welfare system must be a public policy priority, increasing economic prosperity must also be a priority in order to permanently solve the government dependency problem.

 

 

Unfortunately, the challenges to achieving economic prosperity in Maine are greater in some parts of the state. The northern “Rim” counties (Aroostook, Franklin, Oxford, Penobscot, Piscataquis, Somerset, and Washington) face a much steeper climb up the economic ladder than southern “Core” counties (Androscoggin, Cumberland, Hancock, Kennebec, Knox, Lincoln, Sagadahoc, Waldo, and York).

 

Consider these facts:

 

  • Maine’s private sector (as a percent of personal income) was 64.3 percent in 2011. For Rim counties it was much lower at 56.5 percent, but higher in Core counties at 67.1 percent.

 

  • Maine’s population growth was 33.9 percent between 1969 and 2011. For Rim counties is was much lower, at 11.2 percent, but higher in Core counties, at 47.6 percent.

 

  • The percentage of people living below the poverty line is 12.3 percent for the state. For Rim counties it was a much higher 16.9 percent, but lower in Core counties, at 11.5 percent.

 

  • Maine’s unemployment rate was 7.3 percent in 2012. For Rim counties it was much higher, at 8.8 percent, but lower in Core counties, at 6.7 percent.

 

The most effective way to increase overall economic prosperity in Maine is to direct attention to the areas of the state that need it the most. This is the fundamental idea behind Jack Kemp’s “Enterprise Zones” that first became popular in the 1980s. Since then, most states have adopted similar programs. New Hampshire, Massachusetts, Connecticut, Rhode Island, Texas, and Florida all have enterprise zones which they use to encourage growth in employment and industry.

 

Maine’s Pine Tree Development Zone (PTDZ) program, enacted by Governor John E. Baldacci (D), follows the same economic logic of the original Kemp formulation: decrease the tax burden of government to increase economic prosperity and reduce government dependency.

 

PTDZ’s offer up to 100 percent abatement on the personal and corporate income tax as well as the sales tax for up to ten years in a limited number of business sectors. As of 2012, more than 300 businesses were enrolled in the PTDZ program.

 

Unfortunately, as shown by the continued deterioration of Maine’s economic performance, PTDZ’s do not pack enough economic punch to put Maine back on the path to prosperity. Consider this: PTDZ businesses report creating 450 new jobs in Washington County and 897 in Aroostook County, yet unemployment remains perennially high in these areas. More needs to be done.

 

The Free MEFree Maine—Initiative is an economic development plan that simply takes the economic logic behind PTDZs to its ultimate conclusion. Instead of centralized state government planning—direct, through subsidies, or indirect, through PTDZs—Free ME seeks to spur business and job growth by fully eliminating the personal and corporate income tax and the sales tax for businesses and individuals in a select county(ies) of the state.

 

The Maine Heritage Policy Center created a Free ME index, using the economic variables discussed earlier that clearly show Washington County is experiencing the greatest degree of economic distress and government dependency in the state—it is the only county where 1 in 5 residents lives below the poverty line.

 

At the same time, Washington County has an abundance of natural resources such as the port of Eastport (the deepest natural harbor in the continental U.S.), the longest undeveloped stretch of coastline on the east coast, and thriving forest, fishing, and blueberry industries.

 

Over time, the Free ME initiative will spark new businesses and jobs, thereby improving Washington County’s relative standing within the index. Eventually, Aroostook County’s index value (now the second highest) will likely top Washington County and the Free ME initiative would be triggered there as well, and so on down the list.

 

This phase-in of Free ME will bring relief to the areas of Maine that need it the most, while minimizing disruption to the state budget. In fact, as government dependency is reduced and welfare plummets, there will be a growing positive impact on the state budget—especially Washington County where MaineCare spending alone exceeds revenue from the personal income tax and sales tax.

 

Once a Free ME qualified county’s index value returns to the state average for three consecutive years, a new consumption-based tax system could be implemented. For example, New Hampshire’s Business Enterprise Tax is an efficient consumption tax with a successful, twenty-year history that could easily be adopted in Maine.

 

 

Overall, Free ME is not a new concept. Free ME simply expands on the bipartisan idea embodied in the PTDZ, which will exponentially increase the positive economic impact in the economically hardest hit areas of Maine. The Free ME initiative will help put Maine back on the path to prosperity.

 

Maine’s Growing, Yet Uneven, Economic Distress

 

Maine has a government dependency problem. According to the Maine Heritage Policy Center’s extensive “Fix the System” study on Maine’s welfare system, nearly 1 out of every 3 Mainers is on welfare. While reforming Maine’s welfare system must be a public policy priority, increasing economic prosperity must also be a priority in order to permanently solve the government dependency problem.

 

The need for economic prosperity has increased greatly after the enactment of Obamacare. First, Obamacare is creating powerful headwinds that are thwarting economic growth.[2] Second, Obamacare’s “maintenance-of-effort” provisions prevent Maine’s policymakers from right-sizing Mainecare (Maine’s Medicaid system)—despite numerous requests by Governor LePage to do so.[3]

 

Unfortunately, the challenges to achieving economic prosperity in Maine are greater in some parts of the state. The northern “Rim” counties (Aroostook, Franklin, Oxford, Penobscot, Piscataquis, Somerset, and Washington) face a much steeper climb up the economic ladder than southern “Core” counties (Androscoggin, Cumberland, Hancock, Kennebec, Knox, Lincoln, Sagadahoc, Waldo, and York).

 

To highlight the different geographic challenges, this study will examine four different economic metrics between the regions: the size of the private sector, population growth dynamics, the poverty rate, and the unemployment rate.

 

The first metric examines the relative change in the private sector share of personal income, as shown in Chart 1. This is very important because only the private sector can create new income; the public sector can only redistribute income through taxes and spending. Put simply, a smaller private sector means less seed corn from which to produce the harvest of strong business and job growth.

 

Free ME Chart 1 Maine Private Sector Share of Personal Income 1969 to 2011 Rim vs Core Counties.JPG

 

In 2011, Maine’s private sector accounted for only 64.3 percent of all income earned—the 10th smallest in the country. Even more troubling is the decline of Maine’s private sector from 1969 to 2011—a decline of 12.8 percent to 64.3 percent in 2011 from 73.7 percent in 1969.

 

Interestingly, in 1969 the core and Rim counties were very tightly clustered around the state average. The private sector in Core counties was only 0.8 percent higher than the state average, while the private sector in Rim counties was only 1.5 percent smaller than the state average. However, by 2011, a massive differential in the size of the private sector grew between the two regions, with Core counties at 4.4 percent higher than the state average, while Rim counties were 12.1 percent lower.

 

Of course, this divergence between the two regions was also superimposed on an overall state-wide decrease in the private sector. As such, the private sector in the Core counties declined by 9.7 percent between 1969 and 2011, but in the Rim counties the private sector plunged by a whopping 22.1 percent.

 

Clearly, resuscitating the private sector in the Rim counties is essential to generating future economic growth in those counties.

 

The second metric examines the relative change in population, as shown in Chart 2. Since 1969, Maine’s population has grown by 33.9 percent. The population growth in the Core counties grew by 47.6 percent, while the Rim counties only grew by 11.2 percent.

 

Free ME Chart 2 Maine Population Growth Index 1969 to 2011 Rim vs Core Counties.JPG

 

However, a deeper examination of the historical demographic data paints a grimmer picture for Maine’s Rim counties. Chart 3 shows the change in net natural population growth, which is the difference between the number of births and the number of deaths between 1991 and 2012.

 

Free ME Chart 3 Maine Net Natural Population Growth (Births minus deaths) 1991 to 2012 Rim vs Core Counties.JPG

 

During that 22-year period, the Rim counties have seen more deaths than births in eleven, or half, of those years. Cumulatively, there have only been 3,332 more births than deaths. The Core counties have consistently had more births than deaths with eleven times the net natural population growth with 37,257 more births than deaths.


More specifically, some counties are setting records for the number of consecutive years in which deaths outnumber births, including: Piscataquis (20 years), Aroostook (17), and Washington (17). Those three counties have had 2,887 more deaths than births during this time-frame.

 

Moving forward, new population projections by the Maine Office of Policy and Management show Maine’s overall population will contract by 0.1 percent between 2010 and 2030.[4] Population shrinkage will be entirely felt in the Rim counties whose population is expected to contract by 3.5 percent, while the population in the Core counties will grow by 1 percent.

 

Fixing the “Demographic Winter” faced by the Rim counties is dependent upon the in-migration of young families.[5] This will require a healthy private sector, capable of generating well-paying jobs to attract them.

 

The third metric is the percentage of population who earns less than the poverty level (in 2011 the poverty level for a family of 4 was $22,811) shown in Chart 4.[6] Overall, Maine’s poverty rate is at 12.8 percent. In the Core counties, the poverty rate is 10 percent lower than the state average (11.5 percent), while in the Rim counties the poverty rate is a whopping 32 percent higher (16.9 percent).

 

Free ME Chart 4 Maine Percent of People Below Poverty Level 2007 to 2011 Rim vs Core Counties.JPG

 

The county with the highest poverty rate in Maine is Washington County, where 1 our of every 5 residents lives below the poverty level (20.4 percent)—trailed closely by Somerset (18.5 percent), Piscataquis (16.9 percent), Franklin (16.8 percent), and Penobscot (16.3 percent).

 

The fourth metric is the unemployment rate as shown in Chart 5 for the years between 1990 and 2012. In 2012, Maine’s unemployment rate was 7.3 percent, which means that 7.3 percent of the labor force could not find a job. This represents 51, 599 unemployed Mainers.

 

Free ME Chart 5 Maine Unemployment Rate 1990 to 2012 Rim vs Core Counties.JPG

 

In the Core counties, the unemployment rate is 8 percent lower than the state average (6.7 percent), while in the Rim counties the unemployment rate is 21 percent higher (8.8 percent). During the entire time-period, the unemployment rate in the Rim counties never equals or falls below the state average.

 

In 2012, there were two counties where unemployment was stubbornly stuck above the 10 percent threshold: Washington (10.7 percent) and Piscataquis (10.1 percent).

 

Overall, these four metrics clearly show Maine’s economic development policies are failing the good people who live in the Rim counties. Every Mainer should be able to find a well-paying job, enabling them to throw off the shackles of government dependency.

 

What are Enterprise Zones?

 

All over the world, political leaders and policymakers have recognized that limiting government’s role in the economy can unleash the power of the free market and foster economic activity. The Greek island of Delos is said to have become the first free enterprise zone in 166 B.C. Since antiquity, the principles of free enterprise zones have been implemented throughout the world.

 

More recently, in the European Union, Germany suggested that euro zone countries with struggling economies should adopt special enterprise zones, characterized by tax incentives and looser regulations. Free enterprise zones have also been suggested as a solution to Detroit’s serious financial crisis. Versions of these zones exist from Hong Kong to Russia, Poland to South Korea. In all times and places, strategic reductions in the burden of government have been shown to stimulate investment and encourage economic growth.

 

U.S. policymakers have been interested in geographically targeted economic development strategies for more than three decades. In 1980, conservative Republican Jack Kemp, who would become the Secretary of Housing and Urban Development under President George H.W. Bush, teamed up with Robert Garcia, a liberal Democrat from the South Bronx, to propose a federal enterprise zone program.

 

Their idea was based largely upon similar enterprise zones established in the United Kingdom, and was viewed as a challenge to popular economic theories based on the work of John Maynard Keynes. Whereas the Keynesian School held that economic development is produced through tax-and-spend redistribution of wealth, proponents of federal enterprise zones believed tactically withdrawing government from the private sector would foster greater prosperity.

 

Although never passed by Congress, this federal proposal, plus others in subsequent years, plowed the ground for the development of enterprise zones in the states. Despite the absence of a federal program, 37 States and the District of Columbia enacted enterprise zone programs by 1993. Ten years later, Maine joined the club.

 

The more than 3,000 enterprise zones across the United States provide many different models for policymakers to consider. When evaluating the enterprise zone concept, lawmakers should look both to states, such as Texas and Florida, where enterprise zones have achieved remarkable results, and to our regional competitors. While we can learn from other states’ policies, we can also ensure that our own policies make Maine attractive and competitive in New England.

 

While enterprise zones differ from state to state, they share many basic characteristics: state and local officials target a distressed area and then cooperate to provide benefits in the form of tax credits, fewer regulations, and, in some cases, greater access to grants and loans.

 

One of the most important considerations when evaluating any given enterprise zone is how difficult it is for businesses to obtain benefits. In many cases, as in Maine, states have highly selective zone requirements. In others, having to navigate a complex bureaucracy discourages businesses from participating in enterprise zone programs.

 

National Enterprise Zone Models

 

The Florida Enterprise Zone Program, established in 1982, offers an array of tax incentives to businesses that choose to create employment within an enterprise zone. Tax incentives includes sales and use tax credit, tax refund for business machinery and equipment used in an enterprise zone, sales tax refund for building materials used in an enterprise zone, and a sales tax exemption for electrical energy used in an enterprise zone. Local governments can provide additional incentives for a zone located within their boundaries. According to an annual report for fiscal year 2012, Florida’s 62 enterprise zones attracted 4,500 businesses and created 11,602 new jobs at cost of $10.0 million. Local and county governments provided an additional $56 million.

 

Kansas Governor Sam Brownback in 2011 led a pioneering tax reform effort aimed at attracting families to rural areas of the state. His plan established Rural Opportunity Zones where families and individuals who relocated from outside of Kansas to rural counties could apply for a five-year exemption from the state’s income tax. The policy was an attempt to address The Sunflower State’s own demographic challenges, which are not unlike Maine’s. Counties were classified at ROZs as long as they had experienced a double-digit rate of population loss over the course of the past decade.

 

Initially, 58 counties qualified for ROZ designation. In 2013, 20 additional counties were added to the program, covering nearly three-quarters of the state. ROZs do not include credits for sales tax or business income.

 

The Texas Enterprise Zone Program provides tax relief for businesses investing in enterprise zones according to a tiered schedule based on the size of relevant capital investments. Like other states, Texas establishes physical boundaries for eligibility. Since its inception in 1988, according to state officials, the Texas Enterprise Zone Program has been one of the most widely used and successful incentive programs of the state in assisting with both job creation and retention efforts. The state claims its enterprise zones are responsible for retaining or creating more than 300,000 jobs and generating $58 billion in capital investments.

 

The Utah Enterprise Zone Program, started in 1988, allows municipalities and counties to request an enterprise zone designation. Benefits of the program include state income tax credits. Eligible towns must have populations below 10,000 while eligible counties must have 50,000 or fewer residents. Utah also factors in a variety of economic distress factors, such as poverty, unemployment, and the extent of commercial property abandonment. Although there are statutory requirements for eligibility, the law gives great leeway to the Governor’s Office of Economic Development in approving applications.

 

The Georgia Enterprise Zone was enacted in 1997 and intended to “improve geographic areas within cities and counties that are suffering from disinvestment, underdevelopment, and economic decline, encouraging private businesses to reinvest and rehabilitate such areas.” According to the state, the enterprise zones were designed to address pervasive poverty, high unemployment rates, underdevelopment, general distress, and general blight. In Georgia, enterprise zone incentives include property tax abatement, abatement or reduction in occupation taxes, regulatory fees, building inspection fees, and other fees.

 

The Texarkana Tax Experiment

 

Texarkana is a unique dual-state metropolitan community comprised of the neighboring cities of Texarkana, Bowie County, Texas and Texarkana, Miller County, Arkansas. Though culturally similar, the cities and their respective states have very different tax laws. Together, the Texarkanas provide a microcosm in which the economic impact of taxes and enterprise zones can be observed.

 

Texas and Arkansas share a border and a common passion for college football, but each state collects taxes in a radically different way. Whereas Arkansas has a top income-tax rate of 7 percent and a capital gains tax, Texas is income-tax free and does not tax capital gains. It’s no surprise that labor, investment, and economic activity generally tend to flow to low-tax Texas—with one important exception: Texarkana.

 

The Texarkana tax tale began in 1977, when former Arkansas Governor David Pryor, a Democrat, signed legislation exempting residents of the city from the income tax. The goal was to stop both individuals and businesses from fleeing The Natural State for the Lone Star State. With the passage of Arkansas’ Enterprise Zone Program in 1993, state lawmakers gave Texarkana the ability to offer tax credits for sales and business income taxes. As a result, Texarkana, Arkansas, is a true free-enterprise zone where residents keep 7 percent more of their paychecks, and businesses’ costs of operating are greatly reduced, especially for large manufacturers.

 

So what has been the result of this decades-long experiment in competitive tax policy? Texarkana, in comparison to the rest of Arkansas, has had a growing labor market and employment has continued to expand even during three major recessions (1980, 1981-82, and 2001). As of June 2013, the unemployment rate in Texarkana, Arkansas, at 7.3 percent, was lower than the statewide average and far below other major municipalities.

 

Payroll employment in the Texarkana (TX-AR) Metropolitan Statistical Area expanded 6.5 percent in the last expansion (November 2001 to December 2007), a growth rate greater than the U.S. (5.4%) and Arkansas (5.2%).

 

The fundamental takeaway Texarkana provides to Maine policymakers is that tax policy is a competitive arena. Despite the challenges presented by neighboring Texas, Texarkana, Arkansas, has been able to survive and thrive by implementing competitive tax policies. These policies have stemmed brain-drain, spurred investment, and given young families a reason to stay in Arkansas. In Maine, Free ME is one way that policymakers can make our own tax code competitive.

 

Regional Enterprise Zone Models

 

Connecticut became the first state to adopt a free enterprise zone in 1981. Amended several times since its inception, Connecticut’s free enterprise zone program offers qualified businesses property tax exemption for facility improvements and a business tax credit. In FY 2010, property tax exemptions costs the state $7.3 million, with municipalities paying an equal amount. Credits for manufacturing facilities equaled just over $1 million. Characteristics that can make a community eligible for an enterprise zone include: population, unemployment rate, percent of unused industrial and commercial space, public assistance case loads, percent of school children receiving free and reduced price lunches, and whether a town or city has experienced a major plant or military base closure. Connecticut also has multiple zone designations, including Entertainment Districts, Railroad Depot Zones, and Bioscience Enterprise Zones. In many instances, Connecticut complements zone designations by providing state-backed grants and loans.

 

New Hampshire’s Economic Revitalization Zone Tax Credit is a small, circumscribed program. Zones are created when an eligible municipality submits a request to the state. Once the state approves the request, qualified businesses within the zone can apply for a tax credit that is applied against the business income tax. Businesses can receive up to $40,000 in credits. The amount of credits allowed annually is capped at $825,000, though the program has dispersed less than $900,000 over its ten-year life. In calendar year 2012, the state spent slightly more than $166,000 on such credits. Analysts with New Hampshire’s Josiah Bartlett Center for Public Policy have said the program is underused due to the bureaucratic hoops companies must jump through in order to obtain relatively meager benefits. Unlike Maine, New Hampshire does not have a personal income tax or sales tax to eliminate.

 

Rhode Island provides a business tax credit to businesses that grow their employment base by 5 percent with full-time Rhode Island residents. The credit is equal to 50 percent of the annual wages paid to new employees to a maximum of $2,500 per employee. Benefits increase when new employees reside within the zone.

 

Massachusetts’ Economic Development Incentive Program (EDIP) provides for more than 200 designated economic target areas (ETAs). Designations are based on income, unemployment, and other economic factors. Benefits provided to qualified businesses within an ETA include state and local tax exemptions through the EDIP Investment Tax Credit Program. The credit is available for businesses creating full-time jobs and investing in eligible projects.

 

Maine’s Pine Tree Development Zones

 

Through the Pine Tree Development Zone (PTDZ) program, the state provides tax benefits to businesses that meet certain eligibility requirements, including their industry sector, location, and qualified job creation. Created at the behest of former Democratic Governor John Baldacci in 2003, the PTDZ program offers significant tax relief to targeted industries through-out the state. In 2007, the Legislature expanded PTDZs to include any qualifying manufacturer. Legislation passed in 2009 essentially made the entire state a single enterprise zone.

 

Benefits PTDZ businesses receive last 5 to 10 years, depending on where the business is located in Maine, and include corporate tax credits, sales and use tax exemptions for both personal and real property, income tax reimbursements of 80 percent, and reduced electricity rates. In 2012 there were 327 businesses that qualified for PTDZ benefits, saving these businesses more than $11.4 million in taxes.

 

Targeted tax relief is a bipartisan idea. The PTDZ program was created and expanded by the Baldacci administration in most cases with the support of Democratic majorities in the Legislature. The idea of targeted tax relief is therefore not an exclusively Republican or conservative idea, but one with broad support across the political spectrum. As recent as February of 2012, Baldacci Advisor David Farmer said the following about PTDZs: “Pine Tree Zones have helped to create thousands of good-paying jobs with benefits, and led to hundreds of millions of dollars’ worth of investment in our state. It’s better to invest resources to create good jobs, which Pine Tree Zones require, than it is to spend that money to address the consequences of more people being out of work.” In other words, spending money on targeted tax relief is better than spending money on redistributive programs that only partially address Maine’s economic challenges.

 

However, while PTDZ are laudable, they are still an incomplete development. The PTDZ model recognizes that lessening the burden of government can give rise to greater economic activity. Instead of subsidies, it focuses on removing government barriers to economic growth which are preventing businesses from growing and hiring new employees. However, the PTDZ program also imposes the hand of government just as it withdraws. Under the PTDZ model, the government picks qualified businesses—i.e. winners—and endows them with preferential tax treatment.

 

Only qualified businesses creating qualified jobs qualify for PTDZ benefits. So what qualifies? The initial PTDZ program considered as eligible the following sectors: biotechnology, aquaculture and marine technology, composite materials technology, environmental technology, advanced technologies for forestry and agriculture, information technology and financial services. Subsequent reforms included manufacturing and precision manufacturing.

 

Free ME Table 1 Data on Certified Pine Tree Development Zone Businesses 2010 and 2012.JPG

 

Rural, northern Maine has not benefited from PTDZ to the same extent as counties in southern Maine. Why? In order to qualify for Pine Tree Zone benefits, a business must expand and hire new employees. This works well and accomplishes policymaker’s goals in southern Maine, but offers little relief to businesses in rural northern Maine that are struggling simply to retain employees.

 

Pine Tree Zones also lack any measure of effectiveness. According to Maine Revenue Services (MRS), more than $55 million in tax benefits have been provided to qualified businesses, producing an estimated 8,000 new jobs. Participating businesses sign state forms—so called “but for” agreements—which claim that these jobs would not have been created but for the Pine Tree Zone. The authorizing legislation originally included a provision directing MRS to assess how much new economic activity and state revenue PTDZ businesses created. However, officials in both the Baldacci and LePage administrations determined that such an assessment would not be feasible. As a result, the state has no way of determining whether Pine Tree Zones are actually responsible for generating new economic activity.

 

The Free ME Initiative

 

The Free ME initiative is an economic development plan that simply takes the economic logic behind the PTDZs to its ultimate conclusion. Instead of centralized state government planning—direct, through subsidies, or indirect, through PTDZs—Free ME seeks to spur business and job growth by fully eliminating the personal and corporate income tax and the sales tax for businesses and individuals in a select county(ies) of the state.

 

Table 2 shows the Free ME index which uses the four economic variables discussed earlier by county—the unemployment rate, the poverty rate, the 5-year change in population, and the 5-year change in the private sector share of personal income. A higher index value indicates a growing level of economic distress.

 

Free ME Table 2 Free ME Index.JPG

 

Consequently, Table 2 clearly shows Washington County is experiencing the greatest degree of economic distress and government dependency with an index value of 39 percent—54 percent higher than the state-wide average index value of 25.3 percent. The most significant driver of this differential is the poverty rate, where in Washington County 1 in 5 residents lives below the poverty line.

 

At the same time, Washington County has tremendous natural resources such as the port of Eastport (the deepest natural harbor in the continental U.S.), the longest undeveloped stretch of coastline on the east coast, and thriving forest, fishing, and blueberry industries.

 

Over time, the Free ME initiative will spark new businesses and jobs, thereby improving Washington County’s relative standing within the index. Eventually, Aroostook County’s index value of 35.5 percent (now the second highest) will likely top that of Washington County and the Free ME initiative will be triggered there as well, and so on down the list.

 

This phase-in of Free ME will bring relief to the areas of Maine that need it most, while minimizing disruption to the state budget. In fact, as government dependency is reduced, there will be a growing positive impact to the state budget as welfare spending plummets.

 

Table 3 shows the difference in personal income taxes and sales taxes paid versus Medicaid received by county in 2009 (the latest year of available data).[8] It shows that government dependency in the Rim counties significantly diminishes the state’s net fiscal position in those counties.

 

Free ME Table 3 Maine Net State Tax and Spending by County 2009.JPG

 

In this analysis, the Rim counties contribute only a net $248 million into Augusta’s coffers, which is roughly one-fifth of the $1.165 billion collected from the Core counties. Washington County has the worst net difference of -$8.7 million, meaning MaineCare spending exceeds revenue from the personal income tax and the sales tax combined. With the state’s ability to modify MaineCare nullified by Obamacare, the only way for the Rim counties to improve their net fiscal positions is through economic prosperity. Economic prosperity will reduce the need for government dependency and save the state money.

 

Once Free ME qualified county’s index value returns to the state average for three consecutive years, a new consumption-based tax system could be triggered. For example, New Hampshire’s Business Enterprise Tax is an efficient, consumption tax with a successful twenty-year history that could be easily adopted in Maine.

 

 

Conclusion

 

Free ME is a bold initiative that will free Maine. It is a realistic strategy for spurring economic development statewide.

 

Maine has the opportunity to become America’s premier destination for economic freedom and growth. Overall, Free ME is not a new concept. Free ME simply expands on the bipartisan idea embodied in the PTDZ, which will exponentially increase the positive economic impact in the economically hardest hit areas of Maine.

 

The Free ME initiative will help put Maine back on the path to prosperity. Just think what it would mean for Maine to become the “tax  haven” of the northeast, where entrepreneurs can thrive, where retirees can enjoy more of what they have saved, where families can keep more of what they earned.

 

Free ME will turbo-charge the state’s economy and make Maine a destination for capital and investment. The economic growth and prosperity that follow will more than make up for the “lost” revenue to government. Free ME is a revolutionary idea that will make Maine more competitive and business-friendly. Free ME will stop the bleeding and jump-start the economic recovery that is so urgently needed.

 

With more job creation, prosperity, and opportunity, Free ME has the ability to decrease government dependence, which sadly has reached epidemic proportions in our state. More than one out of every three Mainers is dependent on the welfare system, and those numbers will only continue to climb unless we act now to turn things around.

 

If adopted, Free ME will keep the flame of freedom burning brightly for generations to come and FREE MAINE.

 

References

 

[1] Moody, J. Scott and Pomerleau, Kyle, “Fix the System: Free Maine Families from Welfare Dependency,” The Maine Heritage Policy Center, 2012.

 

[2] Allumbaugh, Joel, “Obamacare’s Negative Impact on Business Case Study 3,” The Center for Health Reform Initiatives, The Maine Heritage Policy Center, Vol. 10, Issue 4.

 

[3] Robinson, S.E., “Feds Send Mixed Signals on Sequester, Medicaid,” The Maine Wire, March 21, 2013.

 

[4] Moody, J. Scott, “New Population Projections Paint Grim Demographic Picture,” BDN Bog, April 11, 2013.

 

[5] Moody, J. Scott, “The Fiscal Costs of Maine’s Demographic Winter,” The Maine Heritage Policy Center, Vol. 10, Issue 5, August 16, 2012.

 

[6] DeNavas-Walt, Carmen, Proctor, Bernadette D., Smith, Jessica C., “Income, Poverty, and Health Insurance Coverage in the United States: 2011,” U.S. Census Bureau, Current Population Reports, September, 2012, p. 49.

 

[7] World Export Processing Zones Association Newsletter, 2003.

 

[8] This analysis was based on 2009 tax receipt data from the U.S. Census Bureau. The personal income tax was allocated by county based on the distribution of Adjusted Gross Income from the Internal Revenue Service. The sales tax was allocated by county based on the distribution of taxable sales from Maine Revenue Services. The Medicaid data by county is from the Bureau of Economic Analysis and was multiplied by 35.6 percent which is Maine’s portion of Medicaid expenditures. Note, in 2009 the federal stimulus package increased the federal Medicaid match, but for purposes of this analysis it was assumed to be the normal Medicaid match.





J. Scott Moody

J. Scott Moody has nearly 20 years experience as a public policy economist with a specialty in tax policy and has over 180 publications. He has worked for numerous national and state-based think tanks such as the American Conservative Union Foundation, Federalism In Action, Tax Foundation, Heritage Foundation, and The Maine Heritage Policy Center.


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Utah.jpg  Utah

Vermont.jpg  Vermont

Virginia.jpg  Virginia

Washington.jpg  Washington

West Virginia.jpg  West Virginia

Wisconsin.jpg  Wisconsin

Wyoming.jpg  Wyoming