The Truth on State Spending

Last week, The Maine Heritage Policy Center announced the Free ME initiative designed to reduce government dependency through economic prosperity. More specifically, Free ME would eliminate the personal and corporate income and sales tax in the most economically distressed counties in Maine–starting with Washington County.

Predictably, opponents are harping on the cost of the initiative. Garret Martin, executive director of the Maine Center for Economic Policy, publicly stated:

“Where are we going to come up with the money to pay for schools … roads and bridges … public safety … to make sure our correctional system is functioning properly?”

While Mr. Martin’s statement may make for good rhetoric, the statement is uninformed. As shown in the pie chart, the single largest expenditure by Maine state government is public welfare, which is mostly Medicaid, at 36.3 percent of spending. Education is a distant second at 26.5 percent, nearly 10 percentage points lower than public welfare spending.

Chart Showing Maine Spending by Function FY 2011

Mr. Martin’s other spending items are minor relative to public welfare-highway spending is 8.1 percent, police protection is 0.9 percent, and corrections is 1.8 percent. In fact, all other spending outside of public welfare and education is equivalent to public welfare alone.

Clearly, the 800-pound guerrilla in the room is public welfare spending, but Mr. Martin fails to even mention that at all, preferring instead to frighten us with lawlessness in the streets or a collapsed educational system.  Free ME is fundamentally about right-sizing Maine’s public welfare system by encouraging new businesses, jobs and self-reliance–thereby reducing the need for welfare in the first place.

To better see how economic prosperity is essential in the battle against government dependency, one only has to look across the border to New Hampshire. Despite not having a personal income tax or sales tax, New Hampshire’s spending is on par with Maine’s spending in the vast majority of categories such as education, hospitals, highways, police protection, correction, parks and recreation, and governmental administration.

Table Showing Difference in State Spending ME vs NH FY 2011

However, the two areas where New Hampshire diverges from Maine is public welfare (Maine spends nearly $1 billion more per year) and health. In fact, their combined difference of $1.317 billion is nearly equal to the amount Maine collected in personal income taxes ($1.421 billion).

As you can see, New Hampshire proves that economic prosperity, thanks to lower tax burdens, provides enough money to fund basic government services without creating government dependency.

Finally, the incremental approach of Free ME focuses on the most economically distressed areas of Maine first thereby minimizing disruption to the state budget. In fact, Washington County pays about $35 million in personal income and sales taxes–that is roughly one-tenth of one percent of what Maine spent on public welfare and is hardly a budget-buster.

In the end, we cannot simply do nothing while Maine counties, like Washington County, continue to sink further into government dependency. Only a bold initiative like Free ME has a chance to spark much needed economic prosperity and development that will ultimately benefit and free all of Maine.