With the April 15 tax deadline in the rearview mirror, several groups have been drawing attention to Maine’s high tax burden. This high burden, they say, is proof that Maine and its towns should lower their taxes. Maybe.
We don’t dispute that Mainers pay a lot in taxes compared to their counterparts in other states. A tax burden, however, includes a numerator — the amount of taxes paid — and a denominator — a measure of income. One reason Maine’s tax burden is high is because, on average, incomes in Maine are lower than in most other states.
Any effective policy that seeks to lower Mainers’ tax burden must take both factors — tax rates and income — into consideration.
Earlier this year, WalletHub ranked Maine third in the country for tax burden, behind New York and Hawaii. The website calculated this high overall ranking despite ranking Maine’s individual income tax burden as 15th, sales and excise burden as 25th, and property tax burden as 5th.
New York ranked 1st for its individual income tax rate, and Hawaii had the highest sales and excise tax burden, according to WalletHub. New Hampshire — conservatives’ favorite example of a state for Maine to emulate — had the nation’s highest property tax burden. This highlights another truism when it comes to taxes: The money to fund government services has to come from somewhere. So, if the state collects minimal revenue through its taxes, the costs are pushed down to the local level.
Bringing income into the equation gives a fuller picture of Maine’s situation. Maine’s per capita personal income of $48,241 in 2018 was more than $5,000 below the national average. It was 20th from the bottom and by far the lowest in New England, according to figures from the Bureau of Economic Analysis.
By contrast, New York’s annual per capita personal income of nearly $69,000 was 3rd highest in the country and well above the national average.
Simply put, Maine’s lower personal incomes mean residents pay a larger percentage of their earnings in taxes. To reduce this burden, lawmakers can lower tax rates and they can support policies that increase income.
At the lowest end of the wage scale, for example, Maine voters in 2016 approved a higher state minimum wage, after inaction from the Legislature. The state’s minimum wage has risen from $7.50 to $11 an hour today. It is set to rise to $12 an hour next year.
With a significant rise at the bottom of the wage scale, Maine’s average personal income grew faster than the national average in 2017. The average personal income of Mainers rose 3.7 percent from 2016 to 2017, according to statistics released in November by the U.S. Bureau of Economic Analysis.
U.S. Department of Labor statistics that show wages grew across the board for Maine workers in 2017, the first year of the $1 minimum wage increase. But, as expected, the largest gain was among the lowest-paid workers. It was the largest increase in earnings these workers have seen in the more than 15 years that the department has tracked this state-level data.
The benefits of increasing the minimum wage spread beyond rising incomes. Maine has also seen a marked drop in childhood poverty. The number of Maine children living in poverty declined sharply last year. In 2016, there were 44,300 Maine children — about 17 percent — living below the poverty level. In 2017, that number of Maine children living in poverty decreased to 33,000 — or 13 percent. Poverty rates dropped for Maine adults as well, but the decrease was not as large.
Calling for lower taxes is easy. Working to raise incomes is harder. But, efforts to reduce Maine’s tax burden must include both parts of the equation.