Last week my opponent in this election, Peter Drum, wrote a lengthy column on tax reform and specifically on LD 1925, the infamous “tax reform” bill, and questioned my opposition to the bill.
I did indeed oppose LD 1925 and will continue to oppose any dramatic tax increases disguised as “reform.” Tax reform must benefit all Maine people and not create a new series of winners and losers. What Maine people really want, need and have demanded for years is tax relief. Augusta has yet to provide real tax relief.
LD 1925 was a massive tax expansion plan with sweeping policy changes – changes that had been soundly defeated by previous legislatures. This was in exchange for a drop in the top income tax rate, although some in Maine would see an increase. The bill also included an expansion of the circuit breaker and Homestead exemption programs. These expansions and shifts were to be “revenue neutral” – supposedly the Maine people would not pay more in net taxes.
Never had I seen a bill pushed as hard as LD 1925. Legislators were shown spread sheets, graphs, charts, and fancy presentations. There were calculations and more calculations from Maine Revenue Services showing how the average Maine citizen could save hundreds of dollars.
Many of us were skeptical of the grand promises. In 2005 the very same Maine Revenue Services predicted that LD 1, said to be “bold and historic property tax relief,” would save the average Maine property owner hundreds of dollars. Ultimately LD 1 actually increased property taxes.
And in 2003 we heard fantastic predictions of hundreds of millions in savings to our health care system if we invested in the new Dirigo Health program. After hundreds of millions of dollars were spent, we still have the same number of uninsured in Maine, we still owe our hospitals hundreds of millions of dollars and our health insurance premiums are still very high.
Since then, we have had more promises of tax relief with school consolidation and jail consolidation. We have yet to see the results of these bold initiatives.
Back to LD 1925 – To fully understand the impact of this bill, here is some of what it contained:
The most far-reaching and controversial component of this reform package was the expansion of the sales tax to dozens of services currently exempt from taxation. The following categories were to be taxed by Augusta:
Personal care services, including hair care, nail care, health clubs, and funeral services. It also would have extended the current tax on cable TV to include the “basic” package.
Personal property services, including pet grooming, house cleaning, painting, furniture and carpet cleaning, moving services, boat moorings and dockage, janitorial services, dry cleaning and more.
Real property services, installation, repair and maintenance services, including snow plowing, pest control, pool services, landscaping, plumbing, electrical work, building maintenance and chimney cleaning. Also, the Real Estate Transfer Tax was increased.
Transportation and delivery services – all in-state transportation of persons and property, including taxis, rail, water, air or bus. Travel agency fees get hit, too, as do delivery and courier services.
Amusement and recreation, including ski lift tickets, golf greens fees, movie tickets, sporting events, concerts and amusement parks as well as summer camp, camper parks, guided tours and excursions, music lessons, dance lessons, martial arts, paint ball and disc golf.
The sales tax would go to 8 percent on meals, prepared food and lodging. Beer and wine “excise” taxes would rise. Car rentals would be more heavily taxed.
We heard much about the idea of “exporting” taxes which was to get tourists and non- residents to pay more of their “fair share,” so Maine residents would pay less. In practice, however, this makes our ski tickets, restaurant dinners, vacations and recreation here in vacationland more expensive – not exactly what our tourist industry needs right now – especially considering the intense competition between states in this area.
Maine people who go out to dinner or go skiing, etc. would be paying more in taxes, too. According to economist Charles Lawton who writes for the Portland Press Herald, “The fact that some of the expanded tax is exportable does not change the fact that the bulk of it would be paid by people from Maine.”
The key “selling point” of the plan was that, by expanding the sales tax base, we would cut Maine’s income tax to a flat 6 percent. But there was nothing in this bill to prevent another legislature from increasing the income tax right back up to where it is now. One thing was sure though – these new taxes, once in place, would never go away.
Many legislators, myself included, believe this income tax cut, which amounted to around $250 million in revenue to the state, should have been paid for by reducing wasteful spending.
The reform plan would expand Maine’s “Circuit Breaker” program of property tax rebates. The chronic problem with the Circuit Breaker is not the amount of the rebate but that only about 50 percent of those who qualify participate. Many legislators would like to make this benefit automatic as part of the state income tax form and I submitted legislation in the last session to do just that. Augusta elites resisted this change, as it would cost the state millions more in rebates. Interestingly, the money you receive under this program is taxable income.
Also under the plan, the Homestead Exemption would increase from the first $13,000 of property value to $26,000; however, the state would pay only half of the cost of the increase. The remaining $13,000 would be paid for by raising taxes on businesses or by a new local option sales tax.
On June 14, 2007, hundreds of small business owners, employees and citizens descended on the state house for a rally and press conference in opposition to the gigantic tax increase.
Legislators received thousands of phone calls and emails from constituents wishing to register their opposition. I had never received so much input from constituents on any one bill and it was almost entirely against the tax increase. Even if I had thought it was a good idea, as Peter [Drum] does, it would have been hard to support a bill that so many of my constituents were so firmly against.
Thankfully, in the end, LD 1925 was defeated – but not after a long tough fight. The bill was amended many times in attempts to make it more palatable to skeptical lawmakers, but the bottom line remained – this was not real tax relief. True tax relief can come only with a decrease in government spending. Sadly, state spending continues to increase dramatically and so do our taxes and fees, which have raised over $2 billion in revenue in the last six years.
I did indeed believe this was “a bad bill” as Peter quoted me – and that is why I worked against it. I will continue to work against “lift and shift” tax reform bills that open new revenue streams to the state while providing only token, at best, tax relief – especially when my constituents direct me to do so.
State Rep. Jonathan McKane (R-Newcastle) represents Bristol, South Bristol, Damariscotta, Edgecomb, Newcastle and Monhegan. He can be reached at www.jonmckane.com.
