The Plight of the Rich and Tax Flight, Again

The gist of “Where Have Maine’s Rich Gone?”, a new Maine Heritage Policy Center release, is that Maine doesn’t have very many rich people because they have fled the state to avoid Maine’s income tax. It suggests that taxes account for the difference between Maine and New Hampshire in the number and wealth of millionaires, while ignoring the fact that over three-quarters of New Hampshire residents live in Greater Boston and benefit from all the opportunities that one of the wealthiest metropolitan areas in the country offers its residents.

All of this is contrary to the bulk of available evidence, which shows that marginal income tax rates have little impact on migration, the economy and job creation. Eliminating the income tax is recipe for more poverty, a smaller middle class, and slower economic growth.

Tax flight, to be blunt, is anecdote-fueled mythology refuted by careful analysis over, and over, and over.

Instead of worrying about marginal tax rates on the most fortunate people in our society, we should focus on building on our existing assets and ensuring that Maine has the resources to make investments that will give our workers a competitive advantage in the areas that matter most to people: good jobs with good wages, housing, affordable healthcare, and quality of life.

State and local taxes in Maine hit low- and middle-income families much harder than high-income families. The latest available data from Maine Revenue Services shows that state and local taxes cost low-income Mainers pay 17 cents out of every dollar they earn, while the top 1% pays 10 cents. In states without income taxes, or with flat-rate income taxes, it’s even worse.

Cutting taxes for the wealthy means raising taxes on everyone else or cutting back on the public services and investments that actually create jobs and grow our economy sustainably over the long-term: transportation, education, training, and research and development.

State-by-state analysis shows that states adopt policies espoused by groups like the Maine Heritage Policy Center, the American Legislative Exchange Council (ALEC), and Arthur Laffer (the father of voodoo economics), actually have lower rates of employment growth and income growth over the past five years. More specifically, “high-rate” income tax states are outperforming states without an income tax.

Creating good jobs with good wages and a strong middle class won’t happen by accident. The faith-based approach of cutting taxes for the wealthy and waiting for broadly-shared prosperity to appear gets us nowhere. We’ve seen it at the federal level, where thirty years of favorable tax treatment for the rich has gotten middle-class workers nothing but stagnant wages and economic insecurity for their families. We need a state and local tax system that’s fair—where the wealthy pay at least the same share of their income as everyone else— and we need an active approach to economic development and rebuilding the middle class.