On Taxes and Tennessee

IN a letter to the editor published in the PPH, a writer suggests that Maine’s recent poor grades handed out by the Ball State University’s 2014 Manufacturing and Logistics National Report indicates that “high taxes deter manufacturing” in Maine.  The author writes:

One needs only to compare Maine’s tax structure with that of a state to which manufacturing flocks, Tennessee. A Volkswagen plant there started production in 2011.

There are obviously other factors influencing differences in the economics of both states. However, data in tables compiled by The Tax Foundation and edited by economist Scott W. Drenkard reveals startling facts that confirm Hicks’ position. Maine discourages manufacturing with high taxes.

Maine’s (2010) overall tax revenue per capita was $6,213, Tennessee’s, $4,313. Maine’s excise tax was $515, Tennessee’s, $368. Maine’s property tax was $1,786, Tennessee’s $795. Maine’s income tax was $981, Tennessee’s, $27 (on investments only). In most of these comparisons, Maine’s taxes were even higher than national averages. Maine’s and Tennessee’s tax on corporations are equivalent, which refutes the constant push in Maine to lower the corporate rate.

To encourage much-needed manufacturing to come to Maine, taxes in the above categories must be reduced or eliminated. State general sales tax must be increased and taxing authority extended to local communities, to offset lost revenue. Reducing non-discretionary tax brings increased taxable economic cash flow.

Tennessee depends on a high general sales tax of 9.44 percent that does not negatively impact manufacturing. Despite that high rate, their commercial business flourishes.

Maine’s low general sales tax rate of 5 percent is mistakenly maintained by the myopic claim that a higher rate would discourage commercial business and unfairly impact the poor. That position is obviously shown to be illegitimate by Tennessee’s success with a higher general sales tax.

The issue of taxes incentiving businesses to relocate is a hotly debated issue.  However, nothing in the above LTE supports the claim that Maine’s taxes are a deterrent for manufacturing businesses to relocate to the Pine Tree State.

According to the Tax Foundation, in 2014 Maine ranked 29th on its business friendly tax climate index (I am not one to usually this index, but doing so since the LTE author uses it to support their argument).  Tennessee, meanwhile, ranks 15th.  How do the states compare in terms of manufacturing?

The National Association of Manufacturers lists detailed information on state-level manufacturing data.  In Tennessee, manufacturing accounts for 14.9% of the state’s GSP, and 11.5% of employment.  In Maine, those figures are 10.2% and 8.4% respectively.  In raw numbers, Tennessee’s manufacturing output for 2012 (the most recent figures available on the NAM website) was $41.4 bn, and just $5.5 bn for Maine (size of economy is obviously a driving factor in the variance of those two figures).

So, it would appear that the LTE author is correct.  However, looking to Tennessee’s eastern neighbor suggest the tax-manufacturing growth nexus is not as clear as suggested.

North Carolina ranks 44th on the Tax Foundation’s business friendly tax climate index, yet surpasses Tennessee in manufacturing.  According to the NAM data, manufacturing comprises 19.4% of the state’s GSP (4th highest in the country), and 10.9% of employment.  In raw numbers, North Carolina’s manufacturing output in 2012 was $88.3 bn.

As for the author’s claims that Tennesee’s high sales tax does not unfairly impact the poor, according to a report published by the Institute on Taxation & Economic Policy in 2013, Tennessee has one of the most regressive tax structures in the country.  According to the report, the lowest 20th percentile of earners pays 11.2% of income towards taxes (sales, excise, income, property), which is 14th highest in the country for the time period observed, while the top 20th percentile pays just 2.8%, 7th lowest for the time period observed.



John Haskell

About John Haskell

John graduated from the University of Southern Maine with a degree in Political Science, and from the University of Maine School of Law. He has worked in both the public and private sectors, and currently, works with a small business services company in the Mid-Coast area.