The Governor Misunderstands How Taxes Function

May 14, 2013 by

Governor LePage’s assertion that the income tax is a “very regressive tax” is stunningly incorrect.

A regressive tax is one that takes more taxes as a percentage of income from low-income individuals than from higher income individuals. A progressive tax does the opposite. Progressive taxes increase as a person’s income increases.

Property taxes are regressive. Sales taxes are regressive. Excise and gas taxes are regressive. Contrary to what the governor says, the state income tax is progressive.

For example, Maine’s 5% sales tax on basic necessities like appliances or clothing is regressive because, even though high-income people spend more on such items, they use a smaller proportion of their income to do so. Similarly, property taxes hit low-income Mainers harder because unlike wealthy individuals who have less of their assets made up of real property, low-income homeowners have a larger percentage of their income tied up in their home and pay proportionally more in property taxes.

Maine’s tax system is regressive not because of the income tax but because it relies too heavily on property and sales taxes. In 2009 (the latest data available), low- and middle-income families in Maine paid a greater percentage of their income in state and local taxes than their wealthy neighbors. Because higher income individuals pay more in income taxes than low-income workers, they get a bigger break when income taxes are lowered. Low-income individuals, who spend more of their income on property and sales tax, benefit significantly less when incomes taxes are cut. Any tax structure like Maine’s where the rich pay proportionately less than the poor is regressive.

And proposal after proposal put forth by Governor LePage only makes Maine’s tax code more regressive.

Last year, the governor and legislature greatly reduced taxes for those with high incomes. They cut Maine’s most progressive taxes –income, pension, and estate taxes –where the most benefit goes to Maine’s richest 10%.

And this year, the governor wants to eliminate funds to municipalities specifically designed to offset property taxes. In addition he proposes to take a portion of the municipal excise tax that helps to maintain local roads, cut the amount the state reimburses municipalities for general assistance, and contribute less to the cost of local education. The governor’s choices would impose millions of dollars in new regressive property taxes on Maine homeowners.

On top of that, he would gut the “circuit breaker” and homestead property tax relief programs for those whose rent or property taxes comprise a high percentage of their income. Hard working homeowners and renters facing skyrocketing property taxes would have no relief.

To be clear –the governor’s position on taxes is biased against low-income Mainers. The state income tax makes our overall state and local tax system more progressive. Cutting state income taxes makes our tax system more regressive. If the governor is concerned about regressive taxes he should stop cutting the income tax and start cutting property and sales taxes.

A fundamental goal of any tax system is progressivity. Progressive taxes are fairer because they reduce inequality. Those with higher incomes pay more, while hardworking, low-income Mainers get a little more in their take-home pay. Governor LePage must understand this basic tenet of tax policy so he can act for all Mainers, regardless of income. His recent statement shows that he doesn’t. That’s a problem.

2 Responses to “The Governor Misunderstands How Taxes Function”
  1. marilyn polk says:

    He does know…he is a business man…he just doesn’t care about the low income and middle income….he must be bought and paid for by the higher income group and is a member of ALEC and they are out to destroy the economy unless it profits the top 1 percent. Come re-election he will find out where the other 98per cent stand. I am ashamed to admit that I voted for him.

  2. Joe says:

    Actually Marilyn I think you over estimate his analytical abilities. I understand his background is accounting which is primarily a add and subtract functioning system with a little multiplication to help figure out depreciation schedules and percentages. Policy is not a strong component here unless it is to figure out how to make more money or pay less taxes.
    I could be wrong but the way he expresses himself does not lead me to believe he is a DEEP thinker.

Leave a Comment