In April of 2011, Maine People Before Politics released a report titled “Risky Business: Tax On Rich Would Expose State Budget To Whims Of Wall Street & the National Economy”
At the time of the release, Maine was embroiled in a contentious debate regarding whether we should close a gaping state budget hole with spending cuts or tax hikes. Advocates for massive tax increases were relying on a “tax the rich” argument that, while rhetorically effective, also seemed to ignore the dynamics of the economy and the mobility of wealth.
Maine People Before Politics’ goal with the report was to bypass the fairness argument and the emotional and rhetorical battle that was taking place and actually get to the nuts and bolts of what the “tax the rich” approach to balancing a state budget would really look like.
What we found was that the 13 states with higher top marginal income tax rates for high earners faced deficits equal to 16.17% of their total state budgets, about 35% larger deficits than the other 35 states, which faced deficits of about 11.98% of their total state budgets.
Ultimately, what MPBP found was that using a “tax the rich” approach to balancing the state budget was impractical; that the base of wealth in Maine was too narrow and mobile to provide stability and that the “tax the rich” approach would leave Maine in an unstable budgeting environment and make our entire economy and Maine state budget far too vulnerable to the whims of Wall Street and the national economy.
Simply put, an examination of the failure of similar policies in other states was all that was needed to warn Maine policymakers away from this approach.
Now we see that California took a different approach than Maine and the results are ugly. California faces another massive budget deficit and as businesses and wealthy taxpayers flee the state, Californians who depend upon government services the most face even deeper cuts than they would have before.
Maine People Before Politics took the lead in Maine last year – stepping away from the emotion and rhetoric surrounding the debate – and advocated for a responsible solution. As a result of those policies, the Maine people, especially our most vulnerable, will not experience the prolonged upheaval and adversity that many Californians now face.
For proponents of a “tax the rich” approach to balancing state budgets, the appeal is obviously much more about politics and emotion than stability and practicality. However, that does not change the reality that we now see how very wrong this approach has been for California, and the reality that with Maine’s much smaller base of wealth, the results would be even more catastrophic in our great state.