Maine’s economic future looks bleak after the passage of Questions 2 and 4

This commentary first appeared in The Maine Wire.

The recounts for Questions 1 and 2 are almost ready to begin, but there is no significant hope for either opposition campaign in seeing the results of the Nov. 8 election overturned. According to an article in the Portland Press Herald, Secretary of State Matthew Dunlap says that the recounts (which could cost up to $500,000 to complete, even while done simultaneously) are “unlikely” to change the outcomes from election night, as Maine’s election results have been accurate historically.

Unofficial tallies from the Secretary of State’s office show that Question 1, the initiative to legalize marijuana in Maine, passed by just 4,073 votes, while Question 2, which assesses a three percent surtax on incomes earned over $200,000 to advance funding for public k-12 education, passed by 9,563. It would take approximately 16 miscounted ballots in all of Maine’s 503 towns to overturn Question 2, and about eight in each town to overturn Question 1. In other words, “unlikely” is an understatement.

While traditional Mainers may be most distraught in the passage of Question 1, the real tragedy from election night lies in the passage of both Questions 2 and 4. Question 4 is an incremental increase in the minimum wage to $12 an hour by 2020, then indexing future increases with inflation.

As the Maine Heritage Policy Center (MHPC) noted in a press release prior to Election Day, there are a host of business-related consequences to come from the passage of these initiatives. MHPC reached out to the American Legislative Exchange Council (ALEC) in October, asking the group to run three different scenarios through a formula which they use to calculate rankings for their Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index report, using the results to determine the economic impact of these proposals.

The three scenarios ALEC used for their analysis of Maine’s future ranking were the passage of either Question 2 or 4, and the passage of both initiatives. Recently, Maine has made great strides in ALEC’s annual report. Under the leadership of Gov. Paul LePage, Maine has seen its ranking improve from 48th overall in 2011 to 38th in 2016.

Elliot Young and Jonathan Williams of ALEC confirmed that if either Question 2 or 4 were to pass in Maine, our ranking in state economic competitiveness would drop from 38th to 44th. Additionally, if both referendums were to pass, which they did, Maine would drop into the bottom five, eventually becoming the fifth least competitive state in the nation.

To no surprise, the economic competitiveness of our state weakens when the individual income tax for top earners increases to 10.15 percent and small business owners are forced to pay workers $12 an hour – especially when compared to our closest neighbor in New Hampshire.

These measures are particularly harmful to Maine when considering that small business makes up roughly 95 percent of the state economy. Question 2 will affect many small businesses that file their taxes as pass-through entities, meaning business profits are passed onto the business owner as personal income. Many of these same filers will feel twice as much pain when their labor costs nearly double by 2020.

The Tax Foundation, regarded as the nation’s leading nonpartisan tax policy research organization, noted in a January 2015 report that pass-through businesses now earn more net business income than C-Corporations. The additional tax applied through Question 2 will affect approximately 11,450 small businesses that file as pass-through entities in Maine.

The Tax Foundation also reported in late October that the passage of Question 2 alone would send Maine’s rating in their State Business Tax Climate Index into a freefall, dropping from 30th best to 45th. According to the foundation, Maine already faces the 10th highest marginal tax rate in the country, a figure which includes federal, state, and local income taxes, payroll taxes, the deduction for state and local income taxes, and the effect of limitations on itemized deductions.

Maine cannot afford this regression. Instead, the Maine Legislature should follow the lead set by Gov. LePage, who in his weekly address released on Nov. 15, called for reforms of Maine’s referendum process, including changes to how signatures are gathered throughout the state and preventing measures that are actively unconstitutional from appearing on the ballot.

These changes could prevent out-of-state interests from using Maine as a dumping ground for bad policy proposals that have unforeseeable economic consequences for the average middle class voter, none of which are accurately advertised by their big money campaigns.

Not only should the process itself face alterations, but in the upcoming session, Legislators should explore a variety of ways to amend Questions 2 and 4, including reinstating Maine’s tipped wage credit and exempting pass-through filers from paying a 10.15 percent income tax rate.

Unfortunately, the citizens of Maine were duped via their own referendum process by the Maine People’s Alliance and the national teachers’ union, who care little about the economic condition and stability of our state. Both entities openly turned a blind eye to the economic consequences of their initiatives throughout campaign season.

Even though some Democrats were willing to acknowledge the flaws in these proposals prior to the election (with some offering only reluctant support to either initiative, others outright opposing them), their voices were drowned out by the millions of dollars that flooded into our state from the union coffers and other liberal mega donors.

Soon will be the Maine Legislature’s time to act and alter the language of these proposals, or they too will join the rest of us in watching Maine slip back into economic ruin.

Jacob Posik

About Jacob Posik

Jacob Posik, of Turner, is a fourth-year political science major at the University of Maine with a minor in Maine studies. He is a political columnist for The Maine Wire and the news editor of the Maine Campus, The University of Maine's student run newspaper. His blog covers local and national issues regarding politics and sports.