An Avoidable Budget Crisis

January 17, 2013 by

Despite what Governor LePage had to say about protecting the needy when he released his budget last week, the reality is far different. Low- and middle-income Mainers will see their economic security further eroded by property tax increases and deep cuts to basic services if lawmakers go along with his plan.

This budget proposal is the culmination of a four-year, two-step process that began in 2011.

Step 1: Enact income and estate tax cuts that mostly benefit the wealthy and doubled the size of the budget gap confronting the 126th Legislature. Step 2: Propose a solution that involves cutting tens of millions of dollars in tax relief for low-income Maine families, flat funds Maine schools, cuts state aid that funds local services like public safety and road repair, eliminates access to emergency assistance, prescription drugs, and health care for thousands of vulnerable families, and puts Maine on the path to the highest property tax burden in the nation.

The Governor’s budget would require low- and middle-income families to pick up the tab for this avoidable budget crisis while giving the wealthiest Maine families and businesses —who benefited the most from the tax cuts — a pass.

His proposal would eliminate tens of millions of dollars in property tax relief for low- and middle-income Mainers while at the same time forcing dramatic property tax increases and deep cuts to basic public services by cutting routine aid to Maine’s towns and cities.

Meanwhile, Maine’s wealthiest families and largest corporations and businesses would continue to pay a smaller share of their income in taxes than everyone else.

Maine’s state and local tax system was already unfair to the poor and middle class. The disparity is reflected in the chart below, but since data are only available up to 2009, it doesn’t reflect tax cuts and shifts to property taxes made by the 125th Legislature, which made this situation even more unfair.

MECEP will provide a detailed look in the days ahead at the Governor’s proposed budget and its impact on Maine people and our economy. In the meantime, it’s important to understand how we got here.

It started with a depression-sized collapse in state revenues caused by the severe economic downturn of 2007-2009. While the national economy shrank by 5%, Maine General Fund revenue—mostly comprised of income and sales taxes—fell by about 11%.

Five years later, the recovery from that economic disaster isn’t going very well. Annual general fund receipts are still $364 million below the pre-recession peak. For those who think General Fund revenue was too high before the recession anyway, it’s important to understand that it is $304 million below the modest long-term growth trend that prevailed for more than the past 20 years (annual growth averaging $32 million, or anywhere from 1% to 1.3%, after adjusting for inflation).

All told, the recession accounts for about 70% of the state’s $881 million budget gap. The rest is a direct result of the actions of Governor LePage and Maine legislators in 2011 and 2012. At a time of historically high unemployment and with nearly one in four Maine children living in poverty, with tens of thousands of Maine families struggling to stay warm, stay fed, stay healthy, and find employment, the governor and legislature severely aggravated the crisis by adopting a budget that severely cut health care and other programs Maine families depend upon and enacting a slew of tax cuts that overwhelmingly benefit the wealthiest families and corporations in Maine.

When assessed in the broader context of the state tax and budget system, those tax cuts were a raw deal for about 2 in 5 Mainers. The poorest 40% of Maine households—those who are more likely to have lost a job, lost access to health care or child care, and can least afford to see their taxes go up— will actually see their overall state and local tax bill increase in 2013, based on conservative estimates by MECEP.

Now, with a budget gap that’s twice as big as it would have been without the tax cuts enacted over the past two years, the other shoe has dropped with the Governor’s new budget proposal. This time, it’s middle-class families’ turn to pay up. MECEP plugged some of the numbers from the new budget proposal into our October 2012 analysis of the consequences of the 2011 tax cuts.  Four out of five Mainers—everybody but the richest 20% ­—can expect to pay a higher overall state and local tax bill in 2015 if the proposal passes as is. The reason: property taxes hit low- and middle-income families especially hard, since property taxes take a much greater proportion of their income than they do from high-income households.

Even under cautious assumptions about how municipalities respond to severely reduced state funding, property taxes and rents would rise considerably for low- and middle-income Mainers as local officials raise property taxes just to maintain services that have already been cut to the bone by the recession. In addition, under the Governor’s plan, tens of millions of dollars in property tax relief targeted to low- and middle-income Maine families will disappear to pay for tens of millions of dollars in tax cuts for well-off Mainers and businesses.

Governor LePage and his allies say his income tax cuts removed 70,000 low-income Mainers from the tax rolls. The governor’s own revenue office reports  that the average Maine household making less than $14,000 per year saved about $7 as a result of the 2011 income tax cuts. These same families will pay many times more than that in increased property taxes.  It’s important to stop looking at each tax change in isolation and start examining the whole picture.

MECEP will continue to analyze the governor’s budget proposal and report our findings in the days and weeks ahead.  And we will be working with our partners to advocate for a budget that restores tax fairness, protects education, health care and other programs critical to families struggling in our weak economy and encourages shared prosperity.

3 Responses to “An Avoidable Budget Crisis”
  1. Joe says:

    Joel!
    Great job on the facts I am passing on to a few of my conservative friends.

  2. Debe Averill says:

    Cogent and extremely readable analysis, Joel. Keep up the good work.
    MCEP is doing what it can to keep LePage honest since he seems unable to do so himself.

  3. Bill S says:

    Joel, thank you for outlining this administration’s failure so clearly.

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