June 2006 Archives

The Lottery Tax

The next installment of the "Hidden Tax/Fee of the Week" is available on the MHPC website.

Total Hidden Taxes/Fees to Date: 13

Recently, the Federal Reserve Bank of Boston released a study (pdf) examining the economies of New England. Today, the New York Times ran a story about Maine's plight titled "Maine Struggling to Revive Ailing Economy" (registration required). MHPC also recently sent out a press release on this report.

The Bank's study dryly concludes: "In many areas of the economy, Maine concluded 2005 no better than it began the year; in some areas, the situation worsened. Maine's recovery seems to have stalled, and, accordingly, the state's average coincident economic activity index barely budged between 2004 and 2005--and actually fell slightly over the course of the year--as the other New England states saw gains. In fact, Maine was the only state in the country to see a decline over this period, except for Louisiana."

But while Louisiana's decline was due to "forces of nature," Maine's decline can be attributed to the "forces of man." Much of Maine's economic woes can be blamed on a multitude of poor public policy decisions made at the state and local levels of government that substitutes government spending for real economic development.

Maine needs a principled and disciplined free-market approach to reduce its level of taxation, reform its byzantine tax code and reform its health care system--and to do so with a sense of urgency. Every day that passes Mainers fall further behind their fellow Americans in terms of economic progress. Since 1998, Maine has lagged the national average annual growth in Gross State Product by nearly a full percent point--3.1 vs. 2.2 percent, respectively.

Questions/Comments: Email J. Scott Moody

Baloney Season In Full Bloom
by Scott K Fish

Baloney season is in full bloom. Example: the nonstop mixed messages about Governor Baldacci's Dirigo Health Plan (DHP). Dirigo is the governor's two-part state-run health insurance combining Medicaid and a subsidized health plan for individuals, sole proprietors, and small businesses called DirigoChoice.

Recently, the Maine State Employees Union (MSEU) funded radio ads glorifying DHP/Baldacci for, they claim, saving millions of dollars while insuring thousands of uninsured/under-insured Mainers.

Meanwhile, an email arrives here. The Hon. Tarren Bragdon is writing about Dirigo for The Heartland Institute, saying Dirigo, "is hemorrhaging money and faltering, according to [the Baldacci administration's own] figures.�?

Who's giving the Dirigo facts and no baloney?

By Bill Becker

Any reason that the Maine media is not reporting on any of this information? Multiple papers across the country have been reporting on each of these reports over the past few weeks – but nothing out of the Maine press.

Bureau of Economic Analysis 6/8/06 – Maine’s 04-05 change in real GSP in lowest quintile
Bureau of Economic Analysis 6/22/06 – Maine’s 1st qtr. 06 change in personal income in lowest quintile
Federal Reserve Bank of Boston May/June 06 Report – Maine’s 2005 Economic Performance 2nd worst in nation

Perhaps the quote below appropriately sums up the challenges faced by Maine:

From the Federal Reserve Bank of Boston Report – Introduction, page 5
“Overall Economic Activity

Economic activity was generally positive for the New England states in 2005. By the end of the year, five of six states posted gains in the economic activity index from December 2004. Maine was the only New England state — and the only state in the nation except for Hurricane Katrina victim Louisiana — to see economic activity decline. Two states, Connecticut and New Hampshire, recorded boosts that exceeded the national increase.�

Our MHPC press releases on this information can be reached at the following links:
http://www.mainepolicy.org/default.aspx?tabid=77&view=show&pressid=95
and
http://www.mainepolicy.org/default.aspx?tabid=77&view=show&pressid=97

Share my concern re: the lack of coverage? Write me at wbecker@mainepolicy.org

Insurance is an important part of everyone's financial plan. Many people with life insurance purchase term life insurance. Term life insurance provides a fixed premium for a set period of time for a certain death benefit. For example, I have a 10-year term policy. I pay the same $200 premium every year for the entire ten-year period. The premium does not increase over time. Neither does the death benefit change.

These same fixed multi-year premium rates are coming to health insurance. Recently, USGroup a health insurer based in Texas announced that they are offering fixed rate health insurance. Someone purchasing health insurance can choose a policy with a premium that is fixed for two or three years.

With HSAs and fixed rate premiums, the health insurance market is changing rapidly. Unfortunately, Maine people will not have a chance to purchase USGroup's fixed rate insurance. Because of Maine's health insurance regulations, only Anthem, Aetna, Harvard Pilgrim and MEGA Life & Health sell health insurance in Maine. If Maine's health insurance market were more competitive, Maine people would have access to affordable and innovative health insurance products available elsewhere. Until then, everything may indeed be bigger and better in Texas. (Plus, Texans don't have a state income tax!)

A new report by the Tax Foundation examines the difference between tax collections and tax burdens.

How Governments Grab Land: Mary Adams/Scott Fish interview C
EXCLUSIVE: Mary Adams & Scott K Fish
Interview: Chuck Cushman: Founder,Exec. Director,
American Land Rights Association

Note: This is an edited transcript of Chuck Cushman's appearance 4/3/99 on “Fish & Plowman� WVOM-FM 103.9/WBYA-FM 101.7. Mary Adams (The Adams Report) was a guest co-host.

Mary Adams: Chuck, if somebody were starting from knowing absolutely nothing about land acquisition, what would you tell them is the problem with federal or state buying of land? On the surface, it doesn't seem like anything could be wrong with it. You're from the west. You've been through the spotted owl problems, you've seen economies decay, you've seen land acquisition by the federal government, and you've traveled the country with these problems.

Chuck Cushman: Perhaps it would be good for me to put this in perspective. I was a volunteer for the Sierra Club and the Audubon Society. My father was a Ranger for the Park Service. I was in the first Student Conservation Corps in Olympic National Park. My father was a Ranger. I grew up in a National Park. My father bought his home in Yosemite National Park in 1954 and was told in 1962 if he didn't sell his cabin to the Park Service he would never work for them again. Their version of "Let's Make A Deal."

Continued....

By Jason A. Fortin

The Bureau of Economic Analysis (BEA) recently released an analysis of Gross State Product (GSP) for 2005. The study reveals that nationally, from 2004-2005, Gross State Product grew at an average rate of 4.2 percent. During that same time period, Maine was among the states with the lowest GSP growth rates, ranking 42nd with 1.4 percent growth.

Opponents of the Maine Taxpayer Bill of Rights assert that it will limit government's ability to promote economic development in the state. Ed Cervone of the Maine Center for Economic Policy recently stated that "In Maine, this [economic development] could be done through further investments in the community colleges . . . Another option is improvements to energy infrastructure." And the list goes on.

Even better, the other side argues, is if we can pay for these government services with taxes on "people from away." Some want to increase property taxes on out-of-state second home owners while others want to increase the sales tax since they hit tourists--or even better, enact a local option sales tax.

Overlooked in this discussion is the fact that Maine is already the beneficiary of large amounts of government spending funded entirely by "people from away."

posted by Scott K Fish

Pruning/archiving posts on AsMaineGoes.com and I found this excellent piece by my friend, Chuck Cushman. Landgrabbers using tax dollars justify turning private Maine property, usually rural property, into government owned property by saying transactions are made with willing sellers only. Ever wondered, “What is a willing seller?� Mr. Cushman lays it right on the line.

Feel free to copy Chuck Cushman’s piece and to send it all over southern Maine.

'Willing Seller - A Myth,' by Chuck Cushman
Willing Seller – A Myth
by Mr. Charles (Chuck) Cushman

He remembered being told when the park was created that he would not be forced out. But now the agency was targeting local businesses and the county itself. Many small businesses were purchased and put out of business. The Park Service purchased the holdings of several large timberland companies. Smaller timber owners began to sell as they saw that the logging infrastructure might eventually not be there. The mill eventually had to close because it could not get enough wood. Like nature, economic ecosystem of a community is very fragile.

Continued....

The next installment of the "Hidden Tax/Fee of the Week" is available on the MHPC website.

Total Hidden Taxes/Fees Revealed To Date: 10

By Jason A. Fortin

It appears, for at least the time being, the Death Tax has survived until the next Congress. Last week, a Senate attempt to completely repeal the Death Tax was scuttled by a Democrat-led filibuster. Even with the U.S. Death Tax rate ranking in the top three internationally--actually higher than our Franco allies--there are still members of Congress eager to keep the confiscatory tax.

The U.S. is one the precipice of an unprecedented demographic change. In the next few years, the baby-boomer generation will begin retiring. Maine is at the forefront of this change and, in fact, is currently the oldest state in the union with a median age of 40.2 years. A graphical illustration of Maine's aging population from 1970 to 2030 based on Census Bureau data and forecasts can be found here on the MHPC website. Naturally, this will have profound economic, political and social ramifications.

By Scott K Fish

Not To Worry About Selling Maine Paper Mills? International Paper is selling two of Maine’s largest paper mills in the Town of Jay (1,000 employees) and the Town of Bucksport (800 employees). Amy Sawyer, an IP spokeswoman said workers should not be alarmed. There are no indications the new owners plan any major changes after the deal is completed this summer.

The Bar Harbor Times's editor is blaming high taxes on Maine's middle class on the high cost of the "wrong war" in Iraq and also on Pres. Bush's tax cuts for "those who can afford to help pay for the president's war." The BHT editor is praising Snowe, Michaud, Allen for opposing extension of the Bush tax cuts, criticizing Collins for "toe[ing] the company line" and voting yes on the tax cut extension.

Columnist Al Diamon in the same BHT writes, "Here's the truth: The property tax is a reasonable tax because property owners demand costly municipal services."

More....

By Bill Becker

Today marks the second anniversary of the death of President Ronald Reagan. While the President is no longer here, his leadership will live on for generations of Americans. We do not mourn his loss today, but instead celebrate his contributions or Nation and the world.

by Jason A. Fortin

A recent poll conducted by Rasmussen Reports revealed that Mainers, at a rate of nearly 4 to 1, believe that tax increases hurt the economy. Of the 500 interviewed Mainers, 59 percent to 15 percent revealed their belief in the negative effects of increasing taxes.

This result should come as no big surprise to policymakers in the Pine Tree State. For years, Mainers have lived under one of the highest, if not the highest, state and local tax burdens in the country. MHPC’s Scott Moody calculates Mainer’s state and local taxes as a percent of personal income to measures 12.8 percent. Maine’s ranking is second to New York, which is 13.1 percent.

Feedback on my "Uninsured Motorists Coverage" entry....

The Aeronautical Jet Fuel Tax.

Total Hidden Taxes/Fees Revealed To Date: 9

Believe it or not, taxes matter. They matter in the sense that people change their behavior in regards to activities subjected to taxation. For example, about ten years ago the federal government levied massive tax increases on the luxury boat building industry . . . practically wiping out domestic boat building as buyers fled to foreign boat builders. Taxes matter.

That being said, proving that "taxes matter" is not as easy as it would seem. In the economics profession there is this tension between "economic theory" and "economic evidence." Theory tells us that taxes distort behavior, but econometrics (the toolbag economists use to measure the world) may not be able to find such distortions. Does the lack of evidence mean the theory is wrong? Of course not! Does anyone actually believe OJ was innocent even if the evidence could not prove it?

So I am starting a "mini-series" in my blog posts called "Taxes Matter" that will highlight important studies--new and old--that find evidence of tax distorted behavior. The first installment is based on a brand-new paper by Glenn Ellison and Sara Fisher Ellison published by the National Bureau of Economic Research (NBER) titled: "Internet Retail Demand: Taxes, Geography, and Online-Offline Competition." The full study can be found here.

They find that:
"Our most basic conclusion on sales taxes is that they are an important driver of e-retail activity. Our state-level regressions show clearly that [on-line] sales are higher in states that levy higher sales taxes on traditional retail purchases. The fact that the websites we study sell so little in California is strong evidence that what we are picking up is a tax effect and not some artifiact of unobserved heterogeneity."

". . . applying the sales tax to e-retail sales could reduce e-retail demand by one-quarter or more."

"In terms of sales taxes, for example, it is quite easy for consumers, in high tax states, especially, to learn the general principle that buying things online saves on taxes, and we find clear evidence [online] sales being higher in high tax states."

While Maine's state sales tax rate is about average, this study suggests that Maine's policy-makers might want to think twice about raising the state sales tax rate and/or allowing local option sales taxes--consumers can easily shift purchases to the internet to avoid the tax. In addition, based on anecdotal evidence, Maine already losses considerable sales tax revenue to New Hampshire (which has no sales tax).