The New Hampshire Advantage in One Chart
Jan 09, 2017
is perhaps no greater goal for the Granite Institute than fighting to
preserve and extend the New Hampshire Advantage. Historically this means
no income or sales tax, but maintaining our advantage into the future
will entail other important policy changes such as increasing
educational choices and enacting right-to-work.
That said, New Hampshire has already gained major economic benefits thanks to the New Hampshire Advantage. The chart above illustrates the vast differences in growth with our neighboring state—Maine. These two states are alike in many ways—geographically, climatically, demographically, and culturally—that it provides for a near perfect natural experiment. Why? Because there is one area where the two states diverge greatly—public policy.
As shown in the chart, between 1929 and 1950, Maine and New Hampshire had similar per household incomes (adjusted for inflation) and private sectors (as a percent of personal income). In 1951 Maine enacted the sales tax, which led to increased public sector spending and crowded-out the private sector. Consequently, New Hampshire’s per household income began to steadily pull away from Maine.
This trend accelerated in 1969 when Maine enacted their income tax—a few years after the federal government enacted Medicaid. With this new source of revenue, Maine was able to dramatically expand its welfare system, especially Medicaid. In fact, as of FY 2010, Maine had the third highest percentage of population on Medicaid at 31 percent.
In stark contrast, New Hampshire remains the only state in the Union to have not enacted a state or local sales tax or state or local income tax.
This difference in public policy has resulted in dramatic differences in the size of each state’s private sector. Between 1929 and 2015, Maine’s private sector shrunk by -28.9 percent to 65.4 percent from 92 percent and is now only the 42nd largest private sector in the country. New Hampshire, on the other hand, has seen its private sector shrink by a much smaller 14.9 percent to 76.9 percent from 90.4 percent and is now the 2nd largest private sector in the country.
As a result, New Hampshire’s private sector in 2015 is 16.6 percent larger than Maine’s—76.9 percent and 65.4 percent respectively. Consequently, New Hampshire’s per household income is now 39 percent higher than Maine’s—$134,848 and $96,980, respectively.
Ultimately this difference matters because personal income is an important economic measure of a family’s well-being. Higher levels of personal income mean that a family is able to buy more goods and services such as a home, a car, education and healthcare.
Finally, this also provides very important evidence as to why New Hampshire policymakers must make repealing Obamacare’s Medicaid expansion a priority in the next legislative session. Such expansion will ultimately result in a smaller private sector and less income for all Granite Staters.
About The Author
J. Scott Moody
J. Scott Moody has worked as a Public Policy Economist for over 18 years. He is the author, co-author and editor of 180 studies and books.