Maine fights back

By Craig Benson

The old saying goes "there are only two certainties in life -- death and taxes."

Sadly government is the only entity that can take as much of your money as it wants and spend it any way it wants. With that awesome power should come responsibilities. First among them is the duty to spend our money at a slower pace than our income grows. Otherwise, each year a taxpayer would have less and less real income. Our quality of life declines as taxes increase. The reality is taxes really do grow faster than paychecks meaning quality of life IS declining.

The problem has gotten so bad in Maine that voters are poised to weigh in on this issue and threaten New Hampshire's traditional economic advantage.

New Hampshire's economic success has been built on the competitive tax advantages we enjoy over neighboring states. Fifty years ago Maine and New Hampshire had similar tax postures and similar economic situations. Since that time Maine's taxes have grown at a more rapid pace than New Hampshire's. As a result New Hampshire's economy is more robust than Maine's.

Two facts demonstrate New Hampshire's economic success. Maine's unemployment rate is much higher than that of New Hampshire, and wages in Maine are much lower than in New Hampshire.

That difference also matters a lot to businesses making decisions. When we moved Cabletron to Rochester, the choice to move to New Hampshire not Maine was easy because of the significant tax differences. How your state contrasts with states thousands of miles away may not matter as much but there is significant tax competition between neighboring states. It's just as easy to be in Kittery as Portsmouth, in Rochester as Berwick.

In making site decisions, the tax impact on the company's bottom line is critical. Management's obligations to shareholders or investors can not ignore saving thousands or millions of dollars simply by moving a few miles across the state line. Moreover, employees benefit because they get to keep more of their paycheck.

This year, Maine is poised to compete more seriously for jobs in Northern New England. On election day, Maine voters will decide whether or not to support a Taxpayers Bill of Rights (TABOR) - a proposal to force the state to live within its means by holding spending growth and tax growth to the change in population and the rate of inflation.

Even in New Hampshire, spending has grown faster than people's ability to pay and creates pressure for higher taxes. Maine's adoption of TABOR has the potential to turn the tables on New Hampshire by keeping tax growth rates below that of New Hampshire creating an economic advantage for Maine which will grow over time.

Government spending acts like a ratchet. When tax collections are strong in good times, spending increases. The problem is that those bills become difficult to pay during economic slowdowns. Moreover within a state there is more than one government entity that may be raising taxes independent of one another.  State, county, and local taxes all must be added together to calculate the real tax burden.

Those higher taxes hurt people who can least afford to have more money taken out of their pocket and damage economic development.

The danger to New Hampshire's economy is that if Maine passes TABOR, they will begin to lure jobs to Maine which might otherwise go to New Hampshire. A spending and tax cap gives business the certainty it looks for in tax policy, especially over the long term. Furthermore, it sends the signal that taxes in Maine will not grow as fast as they do in other states in the region, making Maine more and more competitive each year.

In the short term, we should continue to look for areas where we can improve our competitive edge. In the long term, we should consider our own fiscal discipline to ensure we don't spend faster than New Hampshire's paychecks grow. New Hampshire should adopt its own taxpayer bill of rights.