Why A Little Tax Competition Is A Good Thing

Charles Cirtwill, Commentary, Taxation, Uncategorized

On Canada Day, New Brunswick took the next step in its plan for lower taxes. New Brunswick’s bold move to redesign its system and encourage growth through prosperity has already paid its first dividends – for the people of Maine, no less.

In a recent editorial, The Wall Street Journal touts the “Maine Miracle.” Maine, it seems, has launched a “sweeping tax reform that is almost, but not quite a flat tax.” Sound familiar? Apparently Maine Governor John Baldacci took more away from his meetings last March with New Brunswick Premier Shawn Graham than a vision for a new cross-border energy powerhouse.

Following in Mr. Graham’s footsteps, Mr. Baldacci has introduced a single rate tax with a high-income surtax (for those making more than $250,000 a year) and he is paying for it by controlling spending, eliminating tax loopholes and extending Maine’s sales tax to items previously exempt. One example: It will now apply to ski-lift tickets.

Maine has reduced its tax burden from the seventh-highest in the United States to the 20th. Much like New Brunswick, the overall result might not be perfect, but it is far better than what has come before.

More importantly, it supplies clear and concrete evidence that the commitment to self-sufficiency will be backed up by actions – not incremental steps but by fundamental actions that adjust the playing field and make self-sufficiency a plausible objective.

The challenge for New Brunswick – and the opportunity for the rest of us – will be to remember that the world does not stand still. The steps the province takes to improve its economy, attract new business and make New Brunswick an attractive place to live, work and raise a family, will force other provinces and states to take similar steps. They may even improve upon them.

Consider the Maine example. The pupil may well have exceeded the master. Recall that while a single rate and an expanded harmonized sales tax were on the table, Mr. Graham stepped back from both. He also kept many tax loopholes and created a few more. But this is the nature of competition. New Brunswick threw down the gauntlet and Maine has responded, in spades.

As these reforms take hold it will be difficult for other neighbours, such as Nova Scotia and Quebec, to ignore this phenomenon for long. For that matter, at least one former Conservative leadership contender in Ontario plugged New Brunswick-style reforms as the recipe for rescuing Ontario’s savaged economy.

But there are lessons about communicating such fundamental reforms that New Brunswick Liberals could learn from Maine Democrats. When faced with the accusation that he has simply delivered “tax cuts for the rich,” Mr. Baldacci’s response is two-pronged: “Without employers, there are no employees,” and “The best social-services program is a job.” Words to live by.

Charles Cirtwill is executive vice-president of the Atlantic Institute for Market Studies in Halifax.