One of many pieces in a puzzle. What is the larger picture under construction?
Paul LePage is running on eliminating the personal income tax, which accounted for 43% of state revenue in 2020 with sales taxes at 42% and corporate taxes a whopping 6%.
LePage says "It's time to end the personal income tax" The line has a nice ring to it. "It's time", Why? How?
Why? "to make Maine more competitive", says Lepage. Competitive in what arena?
How? Now let's not get complicated.
But it is complicated because changing one part changes the whole system. Until LePage gives us a more comprehensive concept than "the Florida model" or "the New Hampshire model", he is just spinning talking points.
To say "let's make Florida or New Hampshire the model" is to use two very different models.
According to the Urban Institute, in 2018, New Hampshire had the highest corporate tax rate, while Maine and Florida rated among the lowest. This chart (2004-2019) from the tax policy center put New Hampshire's corporate tax rate at 6.9 and Florida and Maine at 1.8. In 2021 Florida remains one of the states with the lowest corporate tax rates while Maine's corporate tax rate increased and New Hampshire's corporate tax rate decreased.
Both Florida and New Hampshire have eliminated the personal income tax but their Gini coefficient of income inequality differs as widely as their corporate tax rates
Gini coefficient of income inequality rated from lowest to highest among the states
#3 New Hampshire 0.4304
#13 Maine 0.4519
#46 Florida 0.4852
Personal income tax is only one factor among many, Rather than pick out one factor within a complex interactive system, we need to first define the social-economic goal as a whole system. I submit our model should be a restorative middle model. An economy that offers the most opportunity for all is the one with a strong middle sector. An incremental and gradual distribution of wealth from the lowest to the highest offers the most accessibility to growth at any level of society. How do we regain our balance of wealth so that it is a fair system offering what used to be a middle-class lifestyle accessible to all who are willing to "earn a living"? Remember that phrase? It used to mean that one could satisfy one's basic needs, by working and that included homeownership. These days you can't get there from here. To own or rent a home larger than a cubbyhole, one needs, in addition, or instead of an earned income, a passive income.
Why should we care about improving Maine's Gini rating? Maine is forever talking about attracting young people. Improving our Gini rating will make Maine a more competitive place to a younger generation who tend to have less income than older people.
States Ranked by Percent of Population Age 65 or Older, 2018
Population Ages 65+ (percent)
1 Maine 20.6 %
2 Florida 20,5%
9 New Hampshire 18.1 %
50 Utah 11,1 %
Notice I added Utah? Not only does Utah rank the lowest in the fifty states for the population aged 65 or older, but at 0.4063, Utah rates #1 in the Gini coefficient of income inequality rated from lowest to highest among the states. Utah has one of the lowest corporate income tax rates, which according to the Tax Policy Center is a flat rate of 4.95. Utah has a flat income tax of 4.95%. All earnings are taxed at the same rate, regardless of total income.
Will ending the personal income tax have a positive effect on the wealth divide, or make it worse? That all depends on relationships between various functions within a holistic design. It is possible that eliminating the personal income tax can be part of the solution to wealth and opportunity inequality in Maine, but eliminating personal income tax is not a systemic end goal. The end goal is a return to a fair system for the greatest number of people. The current system is clearly not serving that goal and so we have to be open to new ideas, and fairly assessing old ones, such as the upcoming renewal or sunset of the Pine Tree Zone tax exemptions. We should try the pieces out for fit with an eye to the balance within the whole. If a device works toward the end goal, keep it, if not, move on, or figure out why and if a solution doesn't work in the current configuration, ask would it work if other elements were added or subtracted? Let's create our own fresh new model for these very changing times.
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