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Feature
Let Slip the Dogs of (Tax) War
To survive Obama, Maine can learn from Canada.
Like everybody else in his right mind, I love Maine, and I fear for her future. In my case, the roots of love run deep. My grandmother came from Old York, just as, the family Bible records, did her grandfather, and his grandfather. My sister still lives in the family house built in 1690.
I confess to being a serial entrepreneur, which is to say that I come from no place in particular. I have started four businesses-one each in Virginia; Washington, D.C.; Florida; and, most recently, British Columbia. On each of those occasions, because I love Maine, I looked for a rationale to start my new venture here. On each of those occasions, I was unable to make the business case.
Why was that? For two reasons, one obvious, the other perhaps less so. The first reason is that Maine has a famously high-tax, high-regulation legal construct. Some of my colleagues describe Maine’s attitude as anti-business. I don’t see it that way. In my own experience, Maine seems to be agnostic on the question. The established wisdom — be it from the dominant unions or the academy or the loudest voices in the political conversation — seems to be that business exists for one reason only: to pay taxes. And that, derivatively, business hires employees so that they can pay taxes, too. If the fissiparous character of business creation is left unexamined — if no thought is given to its macroeconomic value or its social utility — then business can make only the weakest of claims on public support. In the world of politics, inevitably, business thus gives way to other, ostensibly more high-minded claims on public support.
The second reason not to launch a venture in Maine is more cultural than financial. All Mainers take pride in our vibrant public-service culture. We have long contributed disproportionately to the political life of the nation. From Margaret Chase Smith and Ed Muskie to George Mitchell and Olympia Snowe, we have produced abundant political talent from a state with only one-third of 1 percent of the nation’s population. By contrast, however, a roster of great Maine entrepreneurs might take its place on the shelf of the world’s thinnest books, just a tad thicker than such volumes as Great British Chefs and Famous Italian War Heroes. Indeed, what is striking about Maine — given its well-educated and self-reliant workforce — is the barren nature of the business culture. What we know from the history of economic development is that sustained prosperity depends on thick networks of product and service designers, marketers, venture funders, managers, and — most importantly for small business — angel investors and former entrepreneurs. From Route 128 and Silicon Valley, to Phoenix and Jacksonville, to Bangalore and Guangdong province, economic prosperity requires a culture of job creation, an environment in which business conversation is conducted idiomatically on the basis of shared assumption and common goal. It’s often said of Fortune 500 CEOs that “it’s lonely at the top.” For the Maine entrepreneur, I can assure you, it’s lonely at the bottom. He or she has little in the way of a support system and Maine has made no systematic effort to nurture one.
THESE TWO FACTORS — the high-tax regime and the absence of a business culture — have in part caused, and in part been aggravated by, Maine’s unique demographic problem. That problem, in a word, is that we’re old. Maine’s median age is almost 41. That makes us the oldest state in the nation. If we were a separate country, it would make us one of the oldest in the world. The median age of France, in the heart of Old Europe, is 39. China’s is 34, India’s 25, Iraq’s 20, Afghanistan’s 18. What our aging population means, of course, is that Maine will get to the future first — a future now being reconfigured in its basic fiscal and monetary dimensions by the Obama administration. If the polls are to be believed, fewer and fewer Americans are optimistic about that future. Nobody seems to want to get there first.
So what can be done about Maine’s demographic problem? Let’s look first to its cause, and then for a solution. I’m no demographer, but even I can identify at least three major factors at work here. First is immigration. The person moving to Maine today is more likely to be a 58-year-old ex-cop from Worcester than a 16-year-old lettuce picker from Guadalajara. More old white guys than young brown guys. The second factor is emigration. The person moving out of Maine today is more likely to be a 22-year-old recently minted Colby graduate than a 46-year-old civil servant from Bangor. More young whizzes brain-draining away than mid-career employees moving up and out. And finally, there is the birthrate of 1.8 per Maine woman, one of the lowest rates in the world. That’s as low as Russia’s, which has already seen its population shrink to one-half the size of the U.S. population, well on its way to one-fourth by the middle of this century. With a 1.8 birthrate, which is far below replacement level, Russia’s population, within one generation, will be smaller than Mexico’s.
These three factors, in my sense of the problem, suggest very different responses. First, for the young college graduates barreling down I-95 in search of their future elsewhere? I think that we can ignore them for now. They’re flexible. As soon as we offer a value proposition — as soon as our young people believe they can realize their dreams right here in Maine — they’ll make a 180-turn at the Vince Lombardi stop on the Jersey Turnpike and be on their way back. If you’ve spent four years at Colby College, after all, you know exactly the way life should be.
As for the Maine women who’ve stopped having babies? We will have to forget them for now, too. They are immovable. Young mothers are the most conservative force in any society and they’re unlikely to change their ways until we can demonstrate that we’ve changed our ways — until, that is, we can offer their kids a shot at a good life.
No, I would suggest that our focus should be on immigration and, more specifically, on the kinds of new residents we might be able to attract. By an accident of geography, Maine has a great advantage in this tender area of public policy. Mainers are not preconditioned — as is much of the rest of the country-to see immigration as a threat. We have no boat people coming ashore at Cape Elizabeth. We have no migrant workers wading across at Kittery. There are no refugees streaming over the bridge at Calais. Mainers are well positioned to see immigration for what it really is — a neutral phenomenon which, if perceived clearly, can present rare opportunity.
As it happens, political circumstance has just presented Maine with such an opportunity.
FOR PERSPECTIVE, let me take you back a few years to one of the signal moments in immigration history-the 1997 handover of Hong Kong to the mainland Chinese. One of the perks of owning a television production company, as I did at the time, is that you get to make the crew assignments. Over loud intramural objections, I assigned myself to cover the handover. We set ourselves up in Kowloon’s Peninsula Hotel overlooking Victoria Harbour — at the time, the finest hotel in the world, a magical combination of colonial elegance and Chinese efficiency-and we proceeded to watch history unfold. Our attention was concentrated by a huge digital clock installed on the shoreline — perhaps 25 feet wide — that counted down the days, hours, and minutes to the handover. Anxiety ran high. Would the British and the other developed nations come to the defense of Hong Kong, a citadel of Western capitalism? Would the colonial lease be revised, or extended? Or would Hong Kong’s fledgling democracy movement be snuffed out? Would private wealth be confiscated? Would the Chinese army, reported to be massed at the border, roll in with tank battalions? Into this vacuum of reliable information rumors rushed, and then mutated. Each day, anxiety ran higher, as that clock we all came to hate continued to tick down.
Ten days before H Day, I had some business in Singapore and I took the morning flight over. We entrepreneurs always ride in the back of the plane, but on this occasion a client had given me a first-class ticket, so I boarded first and sat up front. As the economy passengers moved down the aisle and filled up the plane, I noticed something strange. Hong Kong is notable for its fast-paced pedestrian traffic. Hong Kongers march to their own up-tempo, free-market drummer. But my fellow passengers were shuffling and stumbling down the aisle, as if they had just been released from the tubercular ward of the Royal Hospital. I asked my seatmate to explain and, wordlessly, he reached into his pocket and extracted a fistful of gold coins. My fellow passengers, it seems, were on their way to their new second homes — many of them located in safe-deposit boxes — and they were taking with them everything they could carry: rubies, diamonds, works of gold and platinum, coins, and jewelry. Some of the women carried shoulder bags jammed with 30 or 40 pounds’ worth of ingots. On the plane back the next afternoon, I saw many of these same people, all of them lighter on their feet and moving once again at Hong Kong-speed. It’s fair to say that Singapore was re-capitalized that day by what I couldn’t resist describing as “flight capital.”
Returning to Hong Kong, and newly sensitized to the high stakes of the historical moment, I began to look more closely at the options open to Hong Kongers seeking to escape their fearful Communist future. What I found, of course, was mostly ad hocery born of panic. Crazy stuff. But here and there was real innovation. The single most focused and aggressive initiative was undertaken by (of all people) the Canadians. Yes, by those mild-mannered, self-effacing, incrementalist Canadians. The Mainers of the family of nations. What Canada did was to frame the handover as a kind of NFL draft day-an occasion to restock its team with world-class economic players. But unlike the New England Patriots, who might be looking on draft day for, say, a tight end in one round and a cover corner in the next, Canada was looking to draft every player in every round. Canada wanted to upgrade its team at every position, all at once. And they took a strikingly unsentimental approach. Canada did not say, as might have been expected, “Give me your tired, your poor, your huddled masses yearning to breathe free.” No, it said, quite distinctly, “Give me your successful capitalists, your proven performers, your players with critical skills and liquid assets.” Canada had admitted to itself, uncharacteristically, that it wanted to compete in the global economy and that it wanted to win. And so it made an offer that Hong Kong’s capitalist all-stars couldn’t refuse. Taxes? “We’ll cut them to the bone.” Red tape? “We’ll rip right through it.” Family problems? “We’ll assign a concierge until you’re comfortably settled.”
How did that little recruiting trip work out? Well, those of us who watched the winter Olympics several months ago saw a dynamic and prosperous host city, the first Chinese city on the North American continent. For Canadians from coast to coast, Vancouver has become not only an engine of economic growth but a source of glowing national pride.
MY QUESTION IS THIS: can at least some elements of the Canadian experience be adapted to the current situation in Maine? I think they can be. First, consider the existential threat. For the prosperous American in the Age of Obama, the digital clock has begun to tick. The administration is delivering on its implausible campaign promise to shift the government’s bills from the society at large to the prosperous Americans at the top — to the 5 percent of taxpayers earning more than $250,000 per year. Already fixed by law — as a result of health care reform and the expiration of the Bush tax cuts — are future increases in marginal tax rates of 24 percent on interest income, 59 percent on capital gains income, and 189 percent on dividend income. The administration has acknowledged — and CBO projections will demand — that new and larger taxes will be imposed in due political course, which is to say, after the next election. To the prosperous American, it appears that a class war has just been declared — and that he has somehow become an enemy of the state.
About the Author
Neal B. Freeman is chairman of the Blackwell Corporation.
Jim O'Brien| 9.29.10 @ 8:04AM
Maine has little to offer except an image called "Cabot Cove", job-killing taxes, nasty weather, and two Democrat Senators named Collins and Snowe.
Alert1201| 9.29.10 @ 8:29AM
I think the cold does have a lot to play in the problems Main has and teh solution Mr Freeman offers. I am a computer engineer in Dallas Texas and may of my co-works are smart energetic immigrants from Indai and China. Most of them at one time lived in the New England or North Central States like Minnesota or Michigan. When you talk to them every one of them says the main reason they came south was because the weather, they cannot stand the cold.
I am from southeastern CT, so I have some tolerance for the cold, and the few times I visited Main, Vermont and NH in the winter, it was miserable - snow up to your hips every where you walked unless you found an already packed path. We would spend 5 minutes driving around a parking lot looking for a space close to the store to save a few steps in the freezing cold. The roads have so much snow pack from the snow plows that your mail box is a hole in the ice and you have to chisel out a new one each time the plow goes by. Granted it is beautiful in the fall, spring and summer but it is not a place where people use to tropical or even moderate climates are going to enjoy.
Dan Hirsch| 9.29.10 @ 9:27AM
Montreal, Quebec, Minneapolis, Edmonton, don't seem to be bothered by the cold. It's the taxes, it's the taxes, it's the taxes.
You've heard them say 'if you want less of something, tax it.' Well, they are right - the laws of supply and demand work perfectly in this case. (They work about as often as the the laws of gravity, thermodynamics, diminishing marginal returns, etc.) Much better than legislated laws-how arrogant of these politicians to pass "laws!"
Alert1201| 9.29.10 @ 11:10AM
The author did not mention these places. The only one he did was Vancover, which has a very mild climate compared to other cities. Gave me the impression that this was not widespread throughout Canada. However, I could be wrong.
Michael | 9.30.10 @ 3:54PM
Call me crazy but I moved to western Maine in part because of the weather! Love the snow. But the taxes and crippling dependency on government services funded by those taxes that offers little hope for change. Having family in Vancouver, BC, I've witnessed firsthand what Mr. Freeman speaks of and I believe his idea for improving our barren business climate have merit. A tough sell, perhaps -- given the population's tax addiction -- but one can always hope. And vote.
Old Soldier| 9.29.10 @ 8:52AM
When I graduated from Bates many years ago, I pointed my car south on I-95, dropped the hammer and never looked back. You are right about their business philosophy - they are just indifferent. When you are hundreds of miles from anywhere, indifference is a fatal flaw. We didn't know the details but it was obvious that there was no success to be had in Maine - only bad weather and mediocrity.
The failure of the mill industry along the Androscoggin was met with complete indifference. Angry under-employed French-Canadians were just a fact of life. Eventually they were replaced with call-centers and insurance companies. When they were bought out by larger competitors, people were shocked that Maine's taxes and regulations chased those jobs out of state as well. Kool-aide drinking Mainers think the thriving Old Port area of Portland is some kind of economic miracle, instead of a small trendy spot for Bostonians and bored college students.
Enjoy your mediocrity.
jimm | 9.29.10 @ 9:03AM
On each of those occasions, I was unable to make the business case. Why was that? For two reasons, one obvious, the other perhaps less so. The first reason is that Maine has a famously high-tax, high-regulation legal construct. Some of my colleagues
Ned| 9.29.10 @ 2:05PM
You could easily be talking about Oregon and Washington... Seattle's mayor is going to solve their multi-million dollar deficit problem by increasing on-street parking from $2.50 an hour (already ridiculous) to $4 an hour, and extend the time that you must pay to 8:00PM, including Sundays... It's 12 miles from my house to downtown Seattle and other than for work I *never*, *ever* go there. While there, I do not spend *any* money. Portland, Oregon would be worse than Seattle, if the Dims could distract everyone long enough to enact a sales tax... and an income tax (only for the rich, of course) is on the Washington ballot in November...
I just need to figure out how to get my roll-over IRA out of the country without giving half to the bloody government... failing that, something south and east, and warmer is coming soon...
If Batty Patty is re-elected, sooner, rather than later....
MoeBlotz| 9.29.10 @ 8:55AM
Maine may be hospitable to the travelling public,but the state sees commercial traffic as a revenue source. Stepped up harassment of interstate truck operators may be pulling in dollars to the state treasury,but it creates one more reason for businesses to locate elsewhere.
Donserge| 9.29.10 @ 9:01AM
Mainiacs love to tout their independence...as in "leave us alone, we do not want any advice on how to do things". Well, their way of "doing things" has resulted in a situation where 55% of the population is on some sort of public assistance. Fighting the "independence" factor plus that 55% figure will take much more than a few short years of "new business influx".
bill fish| 9.29.10 @ 9:08AM
"The established wisdom -- be it from the dominant unions or the academy or the loudest voices in the political conversation -- seems to be that business exists for one reason only: to pay taxes. "
Exactly!!!
Why do former businessmen like Mike Bloomberg and Arnold Schwarzenegger become collectivists after spending some time in politics? Arnold Schwarzenegger, in an ad, talked about encouraging businesses to come to California because "they will produce much needed tax revenues". YIKES!!! If a vampire said to you: "Please come in. You are welcome. You are bringing much needed blood.", would you come in?
Redstateboy| 9.29.10 @ 9:17AM
Not since Joshua Stewart Chamberlain has Maine produced anyone worth Spit
Pedantius| 1.4.11 @ 12:43PM
M/Sgt Gary Gordon, posthumously awarded the Medal of Honor for actions in Somalia.
It's Joshua Lawrence Chamberlain, BTW.
Petronius| 9.29.10 @ 9:21AM
It isn't just Maine. This country is now top heavy with a populace that is unskilled and economically illiterate. With the days of the inflated union paycheck for the minimal pursuits of mindless occupations gone for good, their weeping and gnashing of teeth has metastasized in typical Luddite fashion. The bar has been raised. They look at it and at the ground, yell "unfair" and draw unemployment. Amidst all the taxes, imposts, obstacles, and hassles, American business can no longer afford the bottom feeders who don't care how much our wallets are taxed so long as their minds are not. Game over.
Ken (Old Texican)| 9.29.10 @ 10:46AM
Maine...
A great place to be from.
A great place to visit except in winter.
Sam Vaughn| 9.29.10 @ 11:00AM
I left UMPG and went south to find a job and fortune. This article does describe for me a solution. Yeh, Maine may be cold but it's not like Boston. It's cold and it's beautiful and scares away the weak.
The Maine worker is maligned and abused. After starting with a software company in the 80's my CEO was impressed with two programmers from Machias he had just hired. They worked hard, never quit till a job was done. He asked if Mainers were all like that. At the time I said yes, when life is hard you either rise to the challenge or fail. Most Mainers rose to the challenge.
Fast forward - we've been communized now, Portland is a perfect example of a place where the inmates run the asylum. All the drop-outs from Harvard decided Mainers were too stupid to run their own affairs and Mainers, most being modest and respecting advanced degrees, fell for it. Little do most real Mainers know they have more walking around sense than NYC and Boston combined. Nevertheless, we've been told we're victims, our proud self-reliance is ridiculed like some old Leave it to Beaver episode. We've had Bostoners looking down their noses at us for so long we come to believe it. And yet, a Mainer at the end of the day can still be relied on as my grandfather said, "in the foxhole".
So I say in your article is an opportunity and a warning. Warning -- When people with good intentions decide the "native-folk" need improving then cut the cords of their traditions and independence they do nothing but leave them adrift.
Anybody who has seen a four inch line part from a bollard in a strong Nor'easter knows what I'm talking they become lost.
Opportunity- the Maine worker is, contrary to Bostonian opinions, one of the best educated and hardest working in the country. Get the government out of the way and Maine will thrive, but then I guess, that's not what the Harvard drop-outs in Portland want, nobody really needs them anyhow.....
Stammon| 9.29.10 @ 12:48PM
I love Maine. I spent many a summer there as a child, and wintered over in my late teens and early twentys. If I could I would move tomorrow. But there are no jobs there, and I will not live in Portland, (it's a snow dirty Teaneck NJ). Augusta's nice, Bath is cool, but Bangor is where my heart is. The problem is that there are no jobs. And Mainers don't care. When fishing or deer season rolls around, Mainers will walk off the job and head into the woods. Their work ethic sucks, and "not from around he'ah" is the way they great most new ideas. I have seen new Mainers move in, and within 5 years lose all their gumption and get up and go. I have seen Mainers work amazingly hard, till they don't want to, and then do nothing, forever.
I love Maine, but I would have to be rich to live there.
Dave Williams| 9.29.10 @ 12:54PM
Nice thought, but it's never gonna happen. They're all a bunch of bleeding-heart anti-captalist do-gooder big-government types. Just look at who they send to represent them in Washington.
james wilson| 9.29.10 @ 1:33PM
After you proudly described what passes for "talent" in Maine, I had to force myself to finish this piece. At least Maine is an example for us that white people can degrade themselves without other demographic pressures.
Your brainchild to bring brainpower into the state is not as compelling as Maine's reputation to fleece it.
Sam Vaughn| 9.29.10 @ 3:36PM
I'd have to agree. Walk around Portland and all you see is anti-business types living off the dole. But it's deeper than that, the have's here are the liberals who pretend to care but really don't....
Maine is a perfect example of turning hard working people into welfare victims. Take a guess, does Maine send more money to DC? or is it a welfare recipient of DC.... follow the money... the people in power here happen to like a welfare state.........
Keith Kennedy| 9.29.10 @ 4:03PM
I'll buy in. We (wife and I) just finished a 1 month vacation in Maine, near Augusta. I fit into the over-50 category for "qualifying a prospect." Make me an offer like described by the author; I will come.
Grifford Morento| 9.29.10 @ 5:13PM
I am a successful entrepreneur who loves the rugged coast of maine and would consider moving there if not for the punishing tax structure. I researched the notion to see if it made any economic sense. 15 minutes with my tax attorney and I abandoned the idea. If Maine eliminated their captial gains tax it would likely attract thousands of wealthy year-rounders, many whom probably already own seconds homes in the state but who carefully structure their economic lives elsewhere to avoid Maine's onerous taxes.
Mel Torme| 9.29.10 @ 6:23PM
Olympia Snowe is "political talent"??? In what whorehouse?
That's all I can say. I get 1/4 way through the article, and I see that crap. Ever heard of plausible deniability, as in the movies? You ain't got it, buddy. I'm not sure if I can keep reading your article or not.
I'll let y'all know.
HenryPotter| 9.29.10 @ 11:43PM
Love living here but know that this last only so long before we will have to move out of state. Probably once the economy improves. Not really interested in buying an over-priced house with the tax costs and murky chances of getting ahead with employment. It is an quiet experience living here and I feel the lack of most urban strife you get in the Boston-Washington corridor suits me well. I do not miss big city hassles. I hope in a way it never changes because I'd like to come back to visit often in the next few decades. From what I have seen, it would take a political earthquake to alter the economy and cost of living here.
A.M. Mallett| 9.30.10 @ 12:43PM
Henry, I mean no disrespect but you are from away and this is how and why Maine has changed so much from what it was in mine, my parents, grandparents and generations before. I am not stating that is necessarily a bad thing but it has changed the cultural landscape of the State and in a very real sense disenfranchised the native Maineac from the culture of his youth.
A.M. Mallett| 9.30.10 @ 12:38PM
This column strikes a chord with me as I was born and raised in Maine, the “real” Maine north of Waterville. Unfortunately, I left upon reaching adulthood to escape what I thought at the time was a dismal cultural landscape. Being a restless teenager sitting on the steps on Monument Square in a small town in what some now call the Maine Highlands (nothing but a marketing ploy but an interesting one), the future did indeed look bleak unless I could find a way to escape. For myself in near depression status Maine in the early 1970s and no interest in further school at the time, it was the Army. Off I went and I have continuously looked back since. I returned for a while, went back to school and then set off again many years ago thinking I might again return. I haven’t and until I retire I probably will not, even then.
The state has become what you suggest; high taxes and lacking a business culture that sustains economic growth. I would argue that the liberal Southern Maine, a province of sorts of Massachusetts, has fostered an anti-business climate. Until these matters are addressed with sensible growth strategies, Maine will continue on its forlorn path. Its people are growing older. Older women having fewer children should not be a surprise. However, there is an obvious reason for this. People such as myself move away. I have five children and grandchildren whose roots are elsewhere rather than in my heritage home. Multiply that countless times over and there is the aged population of Maine. There is the lack of entrepreneurs. There is Maine’s future.
Regardless of all of this, Maine remains a wonderful, healthy and comfortable place to call home … for those still there.
Johnny Knuckles| 10.1.10 @ 11:34PM
Sounds like Maine is the Winnipeg of the U.S.: Cold. Over-taxed. Smug. A good place to be from.
holmegm| 10.4.10 @ 2:12PM
When I first saw you bring up immigration, I thought you had gone mad. You want to heal Maine by making it California?
Then I saw that you meant *focused* immigration, actually inviting those who would *help* the situation. Well, what an interesting concept! One that the federal government threw overboard decades ago.