Maine’s State-Local Tax Burden

May 1, 2007

Whenever we release a report that ranks states we hear complaints from two groups. One group complains their state is not as bad as we found, and the other group complains their state is much worse than we found.

Our recently released State-Local Tax Burden Report always draws complaints from both groups. Not surprisingly, states at the top of the tax burden ranks complain the most vehemently because no one wants the dubious distinction of being the highest-tax state in the country. Vermont is number one this year and we received complaints and heard the usual nitpicking about our methodology as soon as the report was released. Our response is here.

Maine is annually one of the highest-taxed states and is no stranger to complaining about it. A recent article in the Portland Press Herald continued the belly-aching.

Former Tax Foundation economist and previous author of the state-local burdens Scott Moody now works for the Maine Heritage Policy Center and did a great job rebutting the author’s quibbling. I’ll add two points to Scott’s rebuttal.

Detractors in Maine and Vermont insist their tax burdens are not as high as we have found because out-of-state taxpayers pay high taxes for second homes in their states. While this is certainly true since both states are popular sites for second homes, critics greatly overestimate the impact this has on their tax burden. They overlook the fact that taxpayers in Maine and Vermont also own second homes in other states, as well as in Vermont and Maine. To do a complete analysis of property taxes paid by out-of-staters on second homes in every state in the country, we would need to know who owned each second home and the location of their primary residence. This data simply does not exist.

The article also contends that simply increasing income in Maine would lower its tax burden. This is not true for Maine, however, because the state has a steeply progressive income tax with a high top rate that collects more money as incomes grow. Increasing Maine’s income, while a positive step, will not lower its tax burden unless tax rates are also reduced. Besides, there is the obvious problem that high taxes deter high incomes.

Maine and Vermont can continue to split hairs over their tax burden ranking, but that will not change the fact that both are very high-tax states. Taxpayers in both states would be better served if their lawmakers worked to lower their tax burden rather than quibble over inconsequential details.

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