Taxation: July 2007 Archives

So I finally got my first experience of fishing in Maine this past weekend. Of course, before I could make my first cast, I had to buy a fishing license. Which got me thinking. Why is it called a "fishing license?" Unlike a "drivers license," I did not have to take any kind of test. We all have to know our driving laws before getting our driving license, but apparently knowledge of Maine's fishing laws is not a criteria for getting a fishing license. All I had to do was give some identification, which was copied onto my "fishing license," and $21. I did not even have to have my picture taken!

My final conclusion: the whole licensing thing is a ruse to cover up the truth. The truth is that this is a tax--a "fishing tax." Someone in Augusta probably thinks that calling it a "license" makes it less offensive than calling it a "tax." They are probably right . . . but if it walks like a duck and quacks like a duck, it is a duck. And to make sure those "from away" pay more than their fair share, a non-resident one-year fishing license costs $52 while a resident one-year license costs $21. Heck, even a 3-day fishing license costs $23--who do you think buys those?

First, be sure to check out our new Medicaid/SCHIP report on why SCHIP expansion is bad for Maine.

However, this blog relates to a different issue. Recently, the Tax Foundation released a study examining how states would fare under SCHIP expansion as proposed by Senator Gordon Smith. His proposal would expand SCHIP by $46.5 billion and would pay for it with a 61 cent increase in the federal cigarette tax.

The study finds that Maine would pay $450 million in higher cigarette taxes, but would only receive $343 million in additional SCHIP funding. As a result, $107 million would be sucked out of the Maine economy by the federal government.

Of course, one has to wonder if Senator Snowe was aware of such facts when she co-sponsored similar SCHIP expansion bills?

In a new paper by economist David Romer and Christina Romer, both professors at the University of California, Berkeley, find that "tax increases are highly contractionary." The paper, "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks," was just published by the National Bureau of Economic Research and is available here. However, you need a subscription to view it, though an earlier version is available free here.

The paper succinctly states that: "The resulting estimates indicate that tax increases are highly contractionary. The effects are strongly significant, highly robust, and much larger than those obtained using broader measures of tax changes. The large effect stems in considerable part from a powerful negative effect of tax increase on investment."

Thanks to Dr. Tyler Cowen's blog "Marginal Revolution" for the source--he is a professor at George Mason University. Here is what he has to say about the paper.

These results also supports the topic of another blog--the deadweight loss of taxation. Put simply, a one dollar increase in taxes may result in up to two dollars in lost economic output.

Forbes magazine released today their second annual "Best States for Business" rankings. Unfortunately, Maine does miserably coming in as the 48th worst state for business--just ahead of Louisiana and West Virginia. To add insult to injury, Maine actually fell two spots from the 2006 ranking where we ranked 46th.

New Hampshire leads New England coming it at the 14th spot, up from 18th the year before. Connecticut comes in at 31, Vermont at 32 and Massachusetts at 36.

The great aspect about this index is that it examines 32 criteria in order to make these determinations--clustered into 6 categories. Here is how Maine does in each: Business Costs (43), Labor (27), Regulatory Environment (46), Economic Climate (30), Growth Prospects (42) and Quality of Life (16). We fare poorly pretty much across the board.

In an interesting article by Dr. Edward L. Glaeser--Harvard Professor and Director of the Kennedy School of Government's Taubman Center for State and Local Government--he found that taxes matter to city growth. The article is titled: "Smart Growth: Education, Skilled Workers, and the Future of Cold-Weather Cities" and states that "Cities, however, must be careful about turning to taxes as their seed corn for growth, because high levies can drive away businesses and high-skill residents . . . specifically, cities with a tax rate that was 1 percent higher relative to income grew 6 percent more slowly than otherwise comparable cities."