AUGUSTA, Maine — One of the underlying assumptions about Gov. Paul LePage’s big tax reform pitch is that lowering individual and corporate income taxes and eliminating the estate tax will help reverse Maine’s well-documented population decline.
Proponents of the tax reform plan say it will put Maine on the demographic upswing by attracting young professionals and wealthy retirees to make the Pine Tree State their primary residence.
The idea is based on a foundational principle of economics — that people make calculated, rational decisions about income and spending aimed to maximize their own economic well-being. If Maine’s tax burden declines, the idea goes, people will move here rather than to a state with higher taxes. Simple logic, right?
“I bet you that everyone in this room knows somebody that lives in Maine less than six months and a day because they don’t want to pay the death tax and they don’t want to pay the high income tax,” LePage said during a recent public forum in Westbrook.
State Sen. Roger Katz, R-Augusta, who serves on the Appropriations Committee, said during Tuesday’s first committee hearing on the budget that he believes “everyone here can come up with five names in 10 minutes” of people who would be incentivized to stay in Maine or move here if the governor’s tax plan goes through.
We learned Tuesday that some Democrats aren’t sold on the idea. That’s going to be a problem for LePage, because it’s one of the biggest selling points for his $6.57 billion two-year budget, which contains the tax reform plan. If Democrats, who hold a majority on the Appropriations Committee and in the House, can’t be convinced that the tax cuts will do anything but starve the state of revenue, the governor is looking at a tough budget battle.
Members of the Appropriations Committee grilled the governor’s finance chief, Richard Rosen, on Tuesday, pressing him for proof that the governor’s plan actually would help stem Maine’s demographic decline.
“I’m going to go wherever my grandkids are,” said Rep. Gay Grant, D-Gardiner. “I think there are a lot of folks who make a lot of decisions based on things other than financial considerations. … I’m still grasping for some data.”
Rep. Adam Goode, D-Bangor, House chairman of the Taxation Committee, which also sat in on Tuesday’s public hearing, said people he knows move for work or for family.
“I don’t know a lot of my peers who are doing the six-months-and-a-day thing,” he said. People like him “often are thinking about where their kids are going to go to school before they think about taxes. … It would be really helpful to have some evidence that young people, the people you’re describing here, are thinking about taxes when they decide where they want to be.”
There are conflicting reports out there about “tax migration.” The liberal Center on Budget and Policy Priorities published a 37-page report last year detailing how and why state taxes have a “negligible impact” on moves between states. The paper’s author, Michael Mazerov, argued that the number of people who move from one state to another in any given year is on the decline. Not only that, he said, most outmigration can be explained by longstanding trends that have little to do with taxation.
“For decades, Americans have been moving away from the Northeast, the industrial Midwest, and the Great Plains to most of the southern and southwestern states, regardless of overall tax levels or the presence of an income tax in any of these states,” he wrote. “They’ve moved in large part for employment opportunities in the Sunbelt states and, secondarily, for less expensive housing, and, for many retirees, a warmer, snow-free climate.”
However, the conservative Tax Foundation, one of LePage’s budget boosters, said that while it’s true “people move for many reasons,” taxes do matter. The Foundation’s Lyman Stone, in a five-part rebuke of Mazerov’s report, wrote that even if the tax rate isn’t cited as the reason for someone’s move, many of the factors that are cited are affected by tax climate.
“We agree with Mazerov that there are many reasons for migration, perhaps foremost among them being employment opportunities,” Stone wrote. “But employment opportunities themselves are partly conditioned on taxes, both because better tax codes encourage economic growth, and because tax policy affects employee recruitment for firms.”
Here’s what the Maine-specific data indicate: The IRS is the best source of data on this question, even though its most recent data set represents moves made between 2010 and 2011. Here’s the list of the top five destinations for people leaving Maine in that time period, how many tax filers moved to each state, and adjusted gross income they brought with them.
— Florida: 2,259 filers; $81 million.
— Massachusetts: 1,786 filers; $73 million.
— New Hampshire: 1,618 filers; $63.7 million.
— New York: 737 filers; $26.3 million.
— California: 586 filers; $20.5 million.
That list paints a mixed picture. In 2010, the Tax Foundation — which ranks the tax burden of each state every year — estimated that Florida and New Hampshire had lower tax burdens than Maine. But the other three states imposed higher taxes.
What’s more, lower taxes in one state don’t seem to preclude residents there from moving to states with higher taxes. In 2010, New Hampshire — where there’s no income tax — was ranked No. 44 by the Tax Foundation, meaning only six other states were listed as having a lower tax burden.
But that didn’t stop 1,752 residents of the Granite State from moving to No. 9-ranked Maine, and bringing their $71.4 million in adjusted gross income with them. Only Massachusetts sent more people to Maine that year, with 1,932 residents of the Bay State taking up residence in Maine.
Even if Democrats accept LePage’s tax-cuts-as-economic-development argument, they still have big revenue questions. Rep. Peggy Rotundo, D-Lewiston, is her party’s chief budget negotiator, and indicated Tuesday that the predicted revenue lost by reduced taxes could jeopardize the state’s other business attraction efforts.
“One of the things that’s concerned me about this proposal is that it does ratchet down state revenue in the outyears,” she said. “If this is about bringing people to the state, and we have fewer dollars in the future for higher education, for workforce development, and workforce development is at the top of businesses’ list, how are we going to address that?”
Follow Mario Moretto on Twitter at @riocarmine.