We must provide tax relief for Mainers.
As this campaign has progressed, a big difference has emerged between my opponent, Jon McKane and me on the issue of tax reform. I would have voted for LD 1925 “To Cut Taxes on Maine Residents by over $140,000,000.” Jon opposed the tax reform package.
The tax reform bill would have lowered income tax for all Maine residents. It also would have provided for greater property tax relief. In discussing the bill, Jon told me only that the bill was a “bad bill” and that it was “full of gimmicks.” I respectfully disagree.
I am sure that Jon had his reasons for voting against the bill since the final vote in the House fell on largely partisan lines. But I would have supported the bill and there are many reasons for my support.
This is where are we now in terms of taxes: In 2008, Maine’s tax burden is 15th in the nation, and in 2006, Maine tax burden was seventh in the nation (source: Tax Foundation).
Maine’s income taxes are high (seventh in the nation) and higher than all other New England states except Vermont. Among states with sales taxes, Maine has one of the narrowest tax bases in the country. Maine taxes just 24 of the 180 items taxed nationally. Maine’s meals and lodging tax (7 percent) is the lowest in New England, and much lower than many other vacation destinations.
This is what LD 1925 would have done: Cut income taxes to 6.5 percent (down from 8.5 percent); repeal “Alternative Minimum Tax”; provide property tax relief; and, pay for income and property tax by broadening the sales tax base and increasing taxes that will get out-of-state residents and tourists to pay their fair share of the upkeep of the state.
This tax restructuring would have brought about the following results: Maine income tax would go from seventh highest to 16th lowest in nation; overall tax burden on Mainers would be reduced by $140 million; 91 percent of Mainers would see a direct tax reduction (averaging over $300 per year); revenues would be more stable and predictable than in the current system; the new system would be as progressive as the current system; and, the new system would spark new economic development.
And this bill did not start out as a partisan bill. The process that the Taxation Committee followed was excellent.
Republicans and Democrats worked together to forge a bi-partisan solution to our State’s seventh highest in the nation income tax. In fact, the Maine Municipal Association (MMA), generally a critic of the Taxation Committee said, “The Taxation Committee worked tirelessly on their task. They produced an extremely thoughtful, detailed, researched, coherent, balanced, and comprehensive tax reform product. They transcended partisan ideologies in a manner rarely seen in the Statehouse. The job simply does not get done any better than this Taxation Committee did it.”
The final bill passed out of the Taxation Committee on an 11 to two vote (with one Republican and one Democrat voting against it).
The bill passed in the House though Jon and most other Republicans voted against it. That is significant because no tax reform plan has passed in decades!
By the time it was taken up in the Senate (over a week later), practically every contract lobbyist available for hire was working against it, and it lost in the Senate.
There seem to be two reasons Legislators think this effort failed. First, most tax reform packages (including this one) involve raising some taxes to lower others. In this package, overall taxes on Maine people would go down, but sales taxes for some services would have increased.
The businesses that feel they will be negatively impacted will always come out and fight these necessary reforms to protect their individual interest instead of looking at the good of the State. But other businesses and citizens who would benefit are often far less vocal in their support. In fact, most working Maine families were probably not even aware that the Taxation Committee was actually trying to lower their income taxes.
Another reason that this failed was probably politics. Despite strong support by some Republicans, Republican Party leadership aggressively opposed the bill. This was despite the strong support of the vast majority of Republicans in the Taxation Committee.
From November 2007 through July 2008, Taxation Committee Chair John Piotti and others had many meetings with Chambers of Commerce and other business leaders. As a result, there is a growing appreciation within the business community of the value of tax reform, which can only help whatever new tax reform package Democrats pursue in 2009.
LD 1925 was criticized as nothing more than a “tax shift.” This is terribly misleading.
Tax reform by definition involves changes in the tax code, lowering certain kinds of taxes and increasing others.
But tax reform done right will lower the tax burden on Maine people. This will happen through any tax system that “exports” more of the burden onto non-residents. And make no mistake LD 1925 would have pushed more taxes on to tourists, summer people, and part time residents. But that is only fair since they use the infrastructure and services.
In addition, any new tax system that will spur economic development more than the current tax system could be designed to further reduce the tax burden by “re-investing” the potential growth into further reductions. That is good for everyone, Republican and Democrat alike.
Some people say that the only kind of tax reform that makes sense is cutting spending in a way that will allow all tax rates to be cut. But in these economic times, state revenues are way down. Major cuts in spending will need to occur just to balance the budget. It would take extreme spending cuts to also allow taxes to be cut. And the State is cutting. The 2009 budget was actually smaller than the 2008 budget. We need to continue to look for savings wherever we can find them, and find them we must.
In hard economic times, the only plausible way to lower tax burden is to make our tax system more effective at making sure that tourists and summer residents pay their fair share and that we encourage economic growth.
This is exactly what a smart tax reform package can do. I believe that, while not perfect, LD 1925 would have accomplished much on those goals, which is why I would have supported it.
Many states have taken steps to broaden their sales tax base. Maine has one of the narrowest sales tax bases in the country. Visitors to Maine often get tax breaks here they don’t get in their home states.
Placing more reliance on sales taxes and less on income taxes has several advantages for Mainers.
The primary advantage is that only about 50 percent of future sales taxes would be paid by Mainers, but all of the benefits would flow back to Mainers in income tax reductions. So this is a way to “export” more tax burden and lower taxes for Mainers. And a shift from income taxes to sales taxes is the best way to lower the tax burden on Mainers and spur economic growth.
Maine desperately needs tax reform to lower our tax burden and spur economic activity. Many States like New Hampshire have taken steps to modernize and rebalance their tax code, and make sure that their tax system does more to encourage economic development.
The longer Maine waits, the longer we live without those benefits. Moreover, if we wait too long, although there will still be some benefit when we change, we will lose all of the relative benefit over those states that have not acted yet. The time for change is now.