PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

State of the Week: MAINE

By at 16 August, 2017, 10:08 pm

A Tax Roller Coaster Ride in the Pine Tree State Ends Up Being No Fun

by Raymond J. Keating-

Small Business Policy Index 2017: Maine ranked 44th among the 50 states.

SBE Council’s “Small Business Policy Index 2017” ranks the 50 states according to 55 different policy measures, including a wide array of tax, regulatory and government spending and performance measurements.

Small Business Tax Index 2017: Maine ranked 48th among the 50 states.

SBE Council’s “Small Business Tax Index 2017” ranks the states according to 26 different tax measures. Among the taxes included are income, capital gains, property, death, unemployment, and various consumption-based taxes, including state gas and diesel levies.

Maine has been on a tax roller coaster ride in recent years, and with the latest plunge, it’s been no fun.

Consider that Maine’s top personal income and capital gains tax rate registered 8.5 percent prior to 2013. Then in January 2013, it dropped to 7.95 percent and to 7.15 percent in 2016. That was all good news for a very high tax state.

And while year-to-year comparisons of SBE Council state indexes must be made very carefully, as the indexes are updated and revised each year, Maine’s changes over this period clearly improved the climate for entrepreneurship, small business and investment. The state’s ranking on the “Small Business Tax Index,” for example, generally improved, moving from 46th in 2012 to 41st in 2016.

However, in November 2016, Maine voters narrowly approved – by a razor-thin margin of 50.57 percent to 49.43 percent – a ballot measure to raise the state’s top personal income and individual capital gains tax rate from 7.15 percent to 10.15 percent. So, Maine now has the second highest rate among the states. The state also dropped to 48th on the “Small Business Tax Index 2017.”

But the damage at the ballot box in Maine did not stop there this past November. Voters also approved a measure to hike the state’s minimum wage mandate from $7.50 an hour to $9, and then rising $1 a year thereafter until hitting $12 in 2020, with increases linked to inflation thereafter.

This measure, as most economists recognize, will only serve to reduce job opportunities for inexperienced, low-skilled workers, as the costs for such labor increases for businesses. Voting to increase the minimum wage might feel good, but it’s bad economics all around.

Clearly, Maine is in desperate need of reducing its weighty government burdens. That process seemed to get started in 2013. But it was all wiped out on Election Day 2016, with the state’s tax and regulatory system now at its most costly and least competitive, and promising to get worse.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

 

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