Maine has a government dependency problem. According to The Maine Heritage Policy Center’s “Fix the System” study, nearly one out of every three Mainers receives food stamps, cash public assistance or Medicaid. While reforming our welfare system must be a policy priority, so is increasing economic prosperity.The challenges to achieving economic prosperity in Maine are […]
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Maine has a government dependency problem. According to The Maine Heritage Policy Center's “Fix the System” study, nearly one out of every three Mainers receives food stamps, cash public assistance or Medicaid. While reforming our welfare system must be a policy priority, so is increasing economic prosperity.
The challenges to achieving economic prosperity in Maine are not equal. The northern “rim” counties (Aroostook, Franklin, Oxford, Penobscot, Piscataquis, Somerset and Washington) face a much steeper climb up the economic ladder than southern “core” counties (Androscoggin, Cumberland, Hancock, Kennebec, Knox, Lincoln, Sagadahoc, Waldo and York).
Consider these facts:
- Maine's private sector contribution (as a percent of personal income) in 2011: rim counties 56.5%, core counties 67.1%.
- Population growth from 1969–2011: 11.2% for rim counties, 47.6% for core counties.
- People living below the poverty line: rim counties 16.9%, core counties 11.5%.
- Unemployment rate in 2012: rim counties 8.8%, core counties 6.7%.
The most effective way to increase overall economic prosperity in Maine is to direct attention to the areas of the state that need it the most. This is the fundamental idea behind Jack Kemp's “Enterprise Zones” that first became popular in the 1980s. Maine's Pine Tree Development Zone program, enacted by Gov. John Baldacci, follows the same economic logic of the original Kemp formulation: decrease the tax burden of government to increase economic prosperity and reduce government dependency.
PTDZs offer up to 100% abatement on the personal and corporate income tax as well as the sales tax for up to 10 years in a limited number of business sectors. Unfortunately, as shown by the continued deterioration of Maine's economic performance, PTDZs do not pack enough economic punch.
The Free ME — Free Maine —Initiative is an economic development plan that takes the economic logic behind PTDZs to its ultimate conclusion. Instead of centralized state government planning — direct, through subsidies, or indirect, through PTDZs — Free ME seeks to spur business and job growth by fully eliminating the personal and corporate income and sales taxes for businesses and individuals in the most distressed counties of the state.
The MHPC created the Free ME index, using the economic variables cited earlier, which clearly shows Washington County is experiencing the greatest degree of economic distress and government dependency in Maine; it's the only county where one in five residents lives below the poverty line.
At the same time, Washington County has an abundance of natural resources such as the port of Eastport (the deepest natural harbor in the continental United States), the longest undeveloped stretch of coastline on the East Coast and thriving forest, fishing and blueberry industries.
Over time, the Free ME Initiative will spark new businesses and jobs, thereby improving Washington County's relative standing within the index. Eventually, Aroostook County's index value (now the second highest) would move up, triggering the Free ME Initiative, and so on down the list.
This phase-in of Free ME will bring needed relief to areas of Maine, while minimizing disruption to the state budget. As government dependency is reduced, there will be a positive impact on the state budget — especially in Washington County where MaineCare spending exceeds total revenue from personal income and sales taxes.
Once a Free ME qualified county's index value returns to the state average for three consecutive years, a new consumption-based tax system could be implemented. Overall, Free ME simply expands on the bipartisan idea embodied in the PTDZ. It will exponentially increase the positive economic impact in the hardest hit areas of Maine.
J. Scott Moody is the CEO and chief economist of the Maine Heritage Policy Center. He can be reached at jsmoody@mainepolicy.org
