NCPA - National Center for Policy Analysis


June 23, 2009

At last, there's a place in America where tax cutting to promote growth and attract jobs is back in fashion. Who would have thought it would be Maine, asks the Wall Street Journal?

This month the Democratic legislature and Governor John Baldacci broke with Obamanomics and enacted a sweeping tax reform that is almost, but not quite, a flat tax. The new law junks the state's graduated income tax structure with a top rate of 8.5 percent and replaces it with a simple 6.5 percent flat rate tax on almost everyone, says the Journal:

  • Those with earnings above $250,000 will pay a surtax rate of 0.35 percent, for a 6.85 percent rate.
  • Maine's tax rate will fall to 20th from seventh highest among the states.
  • To offset the lower rates and a larger family deduction, the plan cuts the state budget by some $300 million to $5.8 billion, closes tax loopholes and expands the 5 percent state sales tax to services that have been exempt, such as ski lift tickets.

This is a big income tax cut, especially given that so many other states in the Northeast and East -- Maryland, Massachusetts, New Jersey and New York -- have been increasing rates. "We hope these lower tax rates will encourage and reward work, and that the lower capital gains tax (of 6.85 percent) brings more investment into the state," says Baldacci.

Yet, these changes alone are hardly going to earn Maine the reputation of "pro-business," says the Journal.  Last year Maine was ranked as having the third worst business climate for states by the Small Business Survival Committee.

Still, no state has improved its economic attractiveness more than Maine has this year, concludes the Journal.

Source: Editorial, "Maine Miracle," Wall Street Journal, June 23, 2009.

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