Responsible Tax Reform?

March 20, 2012 by

Maine has pursued broad based tax reform in fits and starts.  We have seen time and again that responsible, broad based tax reform is difficult to achieve.  The LePage Administration has taken a different approach.  Rather than tackle the whole tax system, they’ve prioritized cutting income and estate taxes as part of the budget process.  This narrow focus has proven effective politically but may ultimately wreak havoc on Maine’s tax system and on future state budgets.

Here are some facts to consider.  Last year’s income tax cut will cost the state over $342 million in revenue during the next biennium.  It also delivers almost 43% of the benefit to the top 10% of taxpayers.  LD 849, a proposal currently being rushed through the Legislature, will cost more than $600 million a year once fully implemented.  The top 10% will receive more than 56% of the benefit.  The Governor’s recently proposed pension tax cut will cost more than $105 million a year and deliver 38% of the benefit to the top 10%.

All together these proposals, combined with the estate tax cut enacted in 2011, will reduce future revenues by as much as $800 million a year.  That’s roughly equivalent to the amount of money the State contributes to K-12 education through the General Fund.  It is also a little less than the amount budgeted for all programs that benefit low-income individuals and families, children, the disabled, and elderly through the Department of Health and Human Services (DHHS).

Even if we cut all General Fund spending on Maine’s judicial system, corrections, environmental protection, economic and community development, inland fisheries and wildlife, and all other departments and agencies that are not part of DHHS or Education, we would still have a revenue shortfall once all the current tax changes take effect.

The costs of these proposals are being pushed off to the future.  They leave the tough decisions about how to cut spending or find revenues from other sources to future Governors and Legislatures.  Current Legislative leaders are rushing the proposals, LD 849 in particular, through the Legislative process with limited public scrutiny.  The impact of these proposals will shift an increasing share of the costs for education and other public services to property taxpayers, municipalities, individuals, and businesses.  Finally, these proposals will dramatically alter the progressivity of Maine’s tax system.  Low-income and working families will pay significantly more in state and local taxes compared to the most wealthy Mainers.  This is already happening as Legislators cut property tax relief which provides the greatest benefit to low- and moderate-income Mainers in order to provide income tax relief that disproportionately benefits upper-income Mainers.

Clearly, the LePage Administration is “reforming” Maine’s tax system.  Whether or not their actions are fiscally responsible and in the best interests of Maine families and our economic future deserves more thorough, open, and vigorous debate.  As an editorial in the March 20 Portland Press Herald stated “Passing this far-reaching limit on future lawmakers without spending some time to work through the potential consequences is a bad way to make public policy.”

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