Two Steps toward Tax Fairness

March 21, 2013 by

At MECEP we’ve written often about the lack of fairness in Maine’s tax system. The bottom 20 percent of Mainers pay 17 cents on every dollar earned in state and local taxes while the top 1 percent pay less than 10 cents on every dollar. The average Mainer pays a little more than 11 cents on every dollar.

Ensuring that Maine’s wealthiest residents, those earning more than $250,000, pay what the average Mainer pays would go a long way toward closing our current budget gap and improving the fairness of Maine’s tax system.

Asking the wealthiest Mainers to pay a penny more per dollar earned would generate significant revenue. Why should a bus driver pay 7 cents more per dollar in taxes than a high paid executive? If each paid an amount of taxes that was proportional to income, then both would have the same state and local tax rate.

That’s step one: making sure that everyone pays their fair share or, in the case of Maine’s wealthiest taxpayers, an amount that is equal to what the average Mainer pays relative to income. Warren Buffett has called a lot of attention to this concept nationally by pointing out that his effective tax rate is significantly lower than his secretary’s.

The second step would be to use these funds to reduce state and local taxes for those who are already paying more than their fair share. This can be done by restoring Maine’s circuit breaker program that provides property tax relief to low- and middle-income Mainers or by making Maine’s earned income tax credit more robust and refundable.

This is not a theoretical exercise. Maine’s own Buffett Rule, proposed by House Majority Leader Seth Berry, could go a long way toward advancing tax fairness. By taking on this issue head-on, Representative Berry has put a stake in the ground for tax fairness. While we’re still assessing the specifics of Rep. Berry’s proposal, the approach looks promising.

Make no mistake: taxes – specifically property taxes – are going up if even one of Governor LePage’s budget proposals is enacted. If this happens, Maine’s tax system will be even less fair than it is now. Resolving our current budget challenges requires lawmakers to assess the full range of taxes – sales, property, and income – that people pay and strike a better balance among these that improves tax fairness and secures the resources needed to invest in Maine’s schools and communities.

Update: An earlier version of this post cited an estimate that raising the per dollar share that people earning more than $250,000 per year pay in state taxes would generate as much as $100 million in additional revenue. Since writing the initial post, MECEP has obtained new information from Maine Revenue Services that we are evaluating to arrive at a more accurate estimate.

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