Taxation: July 2006 Archives

Another very useful source of data that I could have included in my sales tax paper comes from the "Maine Tax Incidence Study" published by the Maine Revenue Service. In terms of sales tax pyramiding, MRS estimates that 32.1 percent of sales tax collections are derived from business-to-business transactions. This is nearly the exact same percentage found by the COST study cited in my sales tax paper. This additional information again points out that sales tax pyramiding is a major problem of the sales tax and makes it very economically destructive--reducing income and jobs for all Mainers.

In addition, the MRS study finds that only 7.7 percent of the sales tax is paid by non-residents. This deflates the myth that the sales tax is primarily paid by "people from away" who vacation in Maine.

The Hidden Tax/Fee counter has taken a large leap upward with the addition of 247 environmental protection fees. The toal now stands at 260.

This excerpt is from the May 2006 Maine Economic Outlook published by the New England Economic Partnership and authored by Dr. Charles S. Colgan--Prefessor of Public Policy and Manegement, Muskie School of Public Service, University of Southern Maine.

Here at MHPC, we examine state and local tax collections as a percent of personal income as the benchmark for determing Maine's level of taxation on the overall economy.

However, there are other methods for measuring the level of taxation. A recent report by the New England Public Policy Center at the Federal Reserve Bank of Boston examines several alternative methods.

For Maine, the critical insight from this report is that Maine has a high level of taxation no matter which way you "slice and dice" the data. Below I have listed the results for Maine (the rankings in this report includes DC so rankings go from 1 to 51).

Total state and local tax burden, FY 2004:
as a share of personal income--4th highest.
as a share of total taxable resources (CY 2003)--2nd highest.
as a share of gross state product--1st hightest.

Total state and lcoal own-source revenue burden, FY 2004:
as a share of personal income--8th highest.
as a share of taxable resources (CY 2003)--3rd highest.
as a share of gross state product--3rd highest.

The Wall Street Journal this weekend ran a story titled "In New England, a Different Kind of Fall." The story is primarily about the cooling housing market and its short-term negative impact. However, over the longer term, the housing outlook is even gloomier. Why? The long-term shifting of population out of New England. The article states: "Meanwhile, the pool of potential home-buyers in the regions is 'falling like a stone,' says New Hampshire-based demographer Peter Francese. He cites U.S. Census Bureau data showing almost 200,000 residents between 25 and 44 years of age left the region between 2000 and 2004. All six New England show declines in that category, with Maine, Vermont, and Connecticut far outpacing the national average."

Comments/ Questions: Email J. Scott Moody

Here is a preview of an upcoming MHPC study examining the growth in real per capita personal income in Maine versus the national average.

By Bill Becker

Why is it that most of the rest of the nation (with the exception of New Jersey) understands that tax cuts create growth in the economy and jobs as well?

The Wall Street Journal reported today that Rhode Island, Oklahoma, New Mexico, and Arizona - all states that have Democrat Governors or where Democrats control a majority of the Legislature - have aggressively cut their tax rates and tax burdens on taxpayers in those states.

And Maine?

A recent Wall Street Journal article titled “Florida Snowbirds Challenge Fairness of Two-Tier Tax� (May 22, 2006) sheds light on a unique feature of Florida’s property tax system. In Florida, full-time residents are given preferential tax property tax reductions while seasonal residents are not. This has led to a growing disparity in property tax bills between the two groups.

There are two property tax reduction mechanisms at work. First, Florida has a homestead exemption worth $25,000. The exemption reduces the homeowner’s assessed value by $25,000. Second, a constitutional cap mandates that assessed values can grow by no more than the lesser of 3 percent or the rate of inflation. These property tax reductions can only be used on the primary homes of permanent residents.

This begs the question—is this good tax policy? Lets compare this to the four principles of a good tax system: transparency, neutrality, simplicity and stability.