In Fiscal Year (FY) 2016, Maine collected $7 billion in state and local taxes—or $5,222 for every man, woman, and child. While this is an impressive sum of money, it tells us little about whether or not the average Maine taxpayer can afford this level of taxation?
To better answer this question, this analysis will calculate Maine’s tax burden relative to the private sector. Ultimately, it is the private sector that creates new wealth and income. A high tax burden means a state is hobbling its private sector relative to other states and reducing their long-run economic growth potential.
Unfortunately for taxpayers, as shown in Chart 1, Maine’s state and local tax burden (tax collections divided by private sector personal income) was the fourth highest in the nation for FY 2016 at 18.4 percent—or 29 percent above the national average of 14.3 percent.
As shown in Chart 2, Maine’s tax burden has increased over time by 104 percent to 18.4 percent in FY 2016 from 9 percent in FY 1950.
To put Maine’s tax burden into perspective, let’s compare it to size of major industries in the state (as a percent of private sector income). As shown in Chart 3, Maine’s 18.4 percent tax burden is greater than these combined industries: manufacturing (9.7 percent), and construction (7.2 percent).
Maine’s high tax burden by type is driven by a high individual income tax burden (4.1 percent, 11th highest) and a very property tax burden (7.5 percent, 3rd highest).
Maine must also contend with neighboring New Hampshire (home of the only tax havens left in America) which does not have a sales tax and lower excise taxes on liquor, cigarettes, and gas. This dynamic has created a situation where Maine taxpayers can arbitrage the tax differential in their favor through cross-border shopping in New Hampshire. In fact, my analysis of Maine/New Hampshire cross-border shopping found that (pdf):
“. . . per capita retail sales in the adjacent bordering counties in Maine (Oxford and York) and New Hampshire (Coos, Carroll, Strafford and Rockingham) have been diverging ever since Maine adopted the sales tax in 1951. By 2007, the retail gap was $8,660 per person ($19,976 versus $11,316). If Maine had the same level of retail activity as New Hampshire, retail sales would have been up to $2.2 billion higher—from $2.9 billion to $5.1 billion—and created thousands of retail jobs.”
This cross-border shopping has worsened in Maine since a “temporary” 10 percent increase in the sales tax (to 5.5 percent from 5 percent) went in effect on October 1, 2013. Under the original law, the sales tax increase was supposed to sunset on June 30, 2016. Anyone care to guess what Maine’s sales tax rate is as of 2018? If you guessed 5.5 percent you are correct . . . so how’s that “temporary” tax hike working out for Maine’s beleaguered taxpayers?!
Additionally, the higher sales tax rate also significantly raises the after-tax costs of cigarettes as well since in Maine the sales tax applies to cigarettes (this also creates the odd situation of taxing a tax as the cigarette excise tax is hidden within the price of cigarettes). This combination has surely exacerbated the cross-border shopping problem with New Hampshire—taxes matter.
Of course, the tax burdens for local government can vary just as much as they do among the 50 states. As such, we have also calculated the local government tax burden for every county in Maine—this includes every taxing jurisdiction within the geographic county borders whether it is a city, a special district, or county government itself.
Maine only has 16 counties and are listed below from highest to lowest local government tax burden:
Finally, don’t forget to watch our exclusive time-lapse video of state and local tax burdens over the last 66 years! See if your state has been above or below the national average?
Scott has nearly 20 years of experience as a public policy economist. He is the author, co-author and editor of over 180 studies and books. His professional experience also includes positions at the American Conservative Union Foundation, Granite Institute, Federalism In Action, Maine Heritage Policy Center, Tax Foundation, and Heritage Foundation.