Amity Shlaes writes in Bloomberg:
At the end of World War II, Maine boasted a bigger economy and a bigger population than New Hampshire. In some other respects the two states were similar. They were both in New England, and both were struggling with the death of old industries such as textiles. In 1946, per capita income was $9,610 and $9,768 for Maine and New Hampshire, respectively…Back in 1946, only 16.6 percent of what Maine residents earned or collected came from a government, federal, state or local. For New Hampshire, that rate was 18.4 percent. Neither state had an income tax or a sales tax. Then the divergence started….Maine lawmakers argued that the general welfare would be served by a new sales tax to pay for a larger government presence, a safety net. Voters weren’t so sure. In 1951, lawmakers prevailed via a trick: they appended their general sales tax to legislation for veterans’ bonuses.
…As early as 1945 New Hampshire signaled it would differ by adopting “Live Free or Die,” as its motto. Over the decades, New Hampshire lawmakers did impose significant taxes, from levies on business and unearned income to the state’s detested “view tax” — an assessment for water-view (but not waterfront) real estate… Still, the state government never burdened citizens with sales or income taxes. Overall today, Maine residents shoulder a heavier tax burden than do those of New Hampshire. State and local taxes take 12.6 percent of personal income in Maine, the sixth-highest share among states. In New Hampshire state and local taxes take 8.7 percent, putting New Hampshire at 49th for tax burden.
The result? Decade in, decade out, New Hampshire’s economy grew faster than Maine’s…Eventually New Hampshire also won the population contest, passing Maine, in part thanks to migration. Last month, joblessness was 8.1 percent in Maine, better than Ohio but still bad, and 5.8 percent in New Hampshire. What about that family pocketbook that the White House highlights? Bureau of Economic Analysis data show average per capita income for Maine in 2009 was $36,745, a bit more than Ohio. In New Hampshire that number was $42,831, eighth highest in the nation.
Can Gujarat and Maharashtra, or Manipur and Nagaland have such a competition? No, if the same-rate GST is implemented. But the GST proposal is just a symptom. Indians need to think about federalism afresh. Otherwise, BJP MPs will continue to say that the Congress is being step-motherly towards Bihar. And if the BJP wins in 2014, Congress CMs will be alleging the same.
Now, if Maine and NH got all or most of their revenues from a GST whose rate was set in Washington, then they too would be attacking Obama or Bush depending on the partisan loyalties of their governors. But that does not happen there, and the American economy – other things being equal – ends up having more safety valves because of this autonomy of policy experimentation granted to states.
We too can route less money through the central government – and we too will have a better standard of living then.
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