How Money Walks in Maine

Maine’s Population Migration

Maine’s Income Migration

A cascade of states are turning to their income tax codes to find an advantage as they try to lure jobs and people. Now Maine is examining how trimming its 7.95 percent top income tax rate down to 4 percent – along with other adjustments to its tax code – can help Maine go from casual growth to booming state.

A quick look at the IRS data shows Maine’s advantage is geographic: while Maine is a small, low-population state at the far Northeast of the country, it attracts people from nearby states with even higher tax burdens. Each year, the IRS collects data of where people live and how much they earn – and using this data allows us to show the migration of wealth from state to state, and county to county.

It’s no surprise that Maine already gains wealth from states such as Massachusetts, New York, and Connecticut.

Maine Gained Wealth From:

And we see that many of the states gaining from Maine are states with no income tax:

Maine Lost Wealth To:

Maine can’t halt brutal winters. It can’t increase its size. But chopping down the top income tax rate could attract even more defectors from nearby high-tax states, and keep earners who are more concerned about the tax climate.

Mainers may feel like their income tax is nowhere near the likes of California, but the top rate of 7.95 percent in Maine kicks in for incomes of just $20,900. In California, that income would only be taxed at 4%, and its highest rates are reserved for much wealthier earners.

Looking more broadly at population growth, Maine and New Hampshire have similar populations – but Maine’s growth since the 2000 census has been a meager 4.24 percent, compared to New Hampshire’s 6.88 percent.

While Maine’s legislators will undoubtedly work hard to find the right balance that protects their state obligations with the cuts they hope to accomplish, it’s worth noting that slow or no growth has a fiscal cost, too. Over time, people’s choices of where to locate mean lower revenues, fewer jobs, and less investment for a state that is not competitive.

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