The previous article in this issue of Maine Business Indicators refers to the source of Maine's tax surplus as the personal income tax. The occurrence of this surplus raises the question about the categories of personal income that provided the state with this windfall.

This article briefly examines the changes in income, wages and salaries, and employment that occurred between the second quarter of 1995 and the second quarter of 1997. Perhaps by so doing, we can gain insight into Maine's good fortune. A more detailed investigation might look at each of the intervening quarters, but for now let us consider only the endpoints. The second quarter of 1997 was selected as the near endpoint, because it provides the latest data available on income and wages. The second quarter of 1995 was selected as the baseline, since it preceded the increase in tax revenues.

Probing trends in income, wages, and employment between the endpoints, this study calculated the absolute change between the endpoints, as well as the 1997 second quarter as a percentage of the 1995 second-quarter base period.

During this period Maine's annual total personal income (TPI) increased by over two billion dollars, almost 10% of the base period. TPI consists primarily of wages and salaries; dividends, interest, and rent; and transfer payments. Most of the transfer payments were for retirement, disability, and health as well as for medical payments. While transfer payments did increase noticeably, they are, for the most part, not subject to the income tax. About two-thirds of the remaining increase came from wage and salary payments plus proprietors' income. The remaining third, almost half a billion dollars, came from dividends, interest, and rent. These categories are subject to the income tax, and thus they contributed to the state budget surplus.
 

Table 1
CHANGES IN TOTAL PERSONAL INCOME
	Change from 1995:II to 1997:II  (Millions)	Percentage Change
Total personal income	$2,091	9.6%
Net earnings	$1,124	8.3%
Dividends, interest, and rent	$457	11.3%
Transfer payments	$561	12.2%

 

Table 2 analyzes changes in the components of earnings-by-industry with respect to earnings, wages, and employment. The largest percentage changes in earnings, wages, and employment occurred in the construction industry, but the largest absolute changes occurred in the services industry. In our study period these two industries contributed more than 56% of the increase in earnings, but the obvious super-contributor was the services industry. The services industry by itself accounted for the total increase of 8,100 in employment, with the gains and losses in the other industries offsetting each other.
 

Table 2
CHANGES IN EARNINGS, WAGES, AND EMPLOYMENT BETWEEN 1995:II AND 1997:II
	Changes in		Changes in		Changes in
	Earnings  (Millions)	Earnings	Wages  (Millions)	Wages	Employment  ('000s)	Employment
Total	$1,124	9.00%	$1,190	9.17%	8.1	1.46%
Farm	$32	45.00%	$6	9.23%	NA	NA
Agricultural services, forestry, fisheries, and other	$19	13.97%	$11	13.75%	NA	NA
Mining	$0	0.00%	($1)	-33.33%	0.0	0.00%
Construction	$169	16.58%	$156	28.36%	2.4	10.34%
Manufacturing	$69	4.14%	$143	5.26%	-4.1	-4.43%
Transportation and public utilities	$41	5.82%	$39	5.87%	0.1	0.44%
Wholesale trade	$76	11.63%	$91	12.38%	1.5	5.84%
Retail trade	$99	5.54%	$110	6.81%	-1.3	-1.11%
Finance, insurance, and real estate	$81	9.72%	$101	12.01%	0.9	3.36%
Services	$464	12.41%	$462	14.62%	8.1	5.37%
Government and government enterprises	$74	2.59%	$71	2.79%	0.5	0.53%
Federal, civilian	$2	0.51%	$3	0.57%	-0.7	-5.11%
Military	$26	11.83%	$22	11.83%	NA	NA
State and local	$47	2.35%	$47	-0.44%	1.0	1.24%

 

Table 3 considers the changes in employment in various categories of the service industry. The largest increase occurred in the social-services sector, with increases in business services the second largest. During the period covered by our study, increases in the social-services category of the services industry accounted for more than one-half of the total employment increase in Maine. Social services include individual and family services, job training, day care, and residential care. Business services include a wide range of activities such as advertising, equipment rental, employment agencies, and computer programing and repair.
 

Table 3
SERVICE EMPLOYMENT CHANGES BETWEEN 1995:II AND 1997:II
Services (total)	8,100	5.37%
Hotel and other lodging places	400	3.36%
Business services	2,400	13.41%
Health services	300	0.58%
Educational services	-400	-3.25%
Social services	4,200	28.38%
Other services	1,200	2.83%

 

In seeking a source for the increase in state tax revenues, we have found that the services industry is the largest contributor when measured in terms of earnings, wages, and employment. The increases in the real, rather than the relative, measures are the more relevant in this instance, since income taxes are imposed upon actual income, not relative income.