AMHERST, Mass. — In a recent column, Amity Shlaes argued that New Hampshire’s relatively strong economic performance in recent decades is long-term payoff from its embrace of low taxes and free market thinking, while Maine suffers as a result of its historic embrace of big government as the solution to its problems. 

Once you wade through the dramatic statements and look at the data, though, there is not much substance to support her claims.

For starters, if you really want to compare the impacts of policies in the two states, each of which is fairly diverse economically and geographically, you would do better to compare pairs of counties across the state line. This allows comparisons where most conditions – save for those meddling state laws – should be similar.

Looking at poverty, for example, we can see that it was 13 percent in Coos County, N.H., and 14.1 percent in the adjoining Oxford  County, Maine, in 2008 according to the Census.

Further south it was 10.7 percent in Stratford County, N.H., and 9.4 percent in York County, Maine. A cross-border comparison of counties — whether looking at poverty or median household income — reveals a mixed picture that is hardly a slam dunk for New Hampshire’s superiority.

More important than the side of the state border you are on, it seems, is how far south you are. (Spoiler alert: “south” equals “closer to Boston”.)

New Hampshire is certainly one of the low-tax standouts among states, but how does it and other low-tax states fair economically compared to “high tax states?”

No different, really.

Average annual growth in per-capita GDP between 1977 and 2007 was 5.7 percent for the ten states with the lowest state and local taxes in 2007. For the ten highest tax states it was 5.8 percent.

Whether you look at the top and bottom five states or rank states by changes in taxes between 1977 and 2007 the results suggest little difference in the economic fortunes of high and low tax states.

And what are government workers in Maine (where 10.6 percent of total employment is state and local government) doing differently than in New Hampshire (where 9.7 percent of total employment is state and local government)?

They are teaching in schools, policing roads, fighting fires, staffing jails, running courts and serving as home health care aides. Same as their “live free or die” counterparts to their west.

But isn’t it really the taxes on businesses that are the true job destroyers?

The good people at the Council on State Taxation say that New Hampshire has higher than average business taxes (5.0 percent of private sector GDP in 2009 compared to the 4.7 percent national average) — higher than in 30 other states.  And the “benefit-to-tax” ratio for New Hampshire business taxes is among the worst the country, with businesses getting less for their tax dollar than in all but four other states.

Is cranking up the taxes on business, and giving them relatively little in return the true key to New Hampshire’s economic success?

Doubtful.

At the end of the day, Ms. Shlaes’ story and the numbers in it tell us little about what makes Maine or New Hampshire tick, or how state and local taxes – or the education, infrastructure, and health care services they finance – impact the economy or our well-being.

The reasons for New Hampshire’s relatively good economic fortunes compared to Maine likely has very little to do with taxes. Taxes, after all, account for a fairly small portion of the cost of doing business for firms. And solid social science research has shown that they have at most small impacts on families and businesses in their decisions about whether to move and where to locate.  

A more reasonable story behind New Hampshire’s relative well-being is the fact that two-thirds of the state’s residents live in the three counties that are part of the Boston metropolitan region – compared to the 16 percent of Maine residents living in the one county arguably in the orbit of that large and prosperous metropolitan area.

But these inconvenient facts don’t give us anyone to blame and don’t fit the grand sweep of history Ms. Shlaes wants to depict. Oh, well.

 

– Special to the Press Herald