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What you should know about the Cutler property tax relief plan

April 15, 2014 by

Today, Eliot Cutler released a plan for providing property tax relief to Maine residents. The center piece is a dramatic increase in Maine’s homestead exemption program, elimination of revenue sharing as we know it, and a new approach to channeling revenue collected by the state to towns and cities.

The basic premise is that Mainers increasingly feel the bite of property tax increases and that our current three pronged approach to mitigating these increases – a modest homestead exemption, revenue sharing, and a program that provides targeted relief for low- and moderate-income Mainers – is no longer working.

What the Culter plan fails to acknowledge is that the primary reason these traditional approaches are falling short is because, with the exception of the homestead exemption, these programs have been gutted to pay for the 2011 income and estate tax cuts passed by the LePage administration and his legislative allies and to shore up critical services in the wake of a revenue collapse brought on by the Great Recession. Reforming a system that is inadequately funded to begin with amounts to little more than rearranging the deck chairs on a sinking ship.

This leads to my second concern with the Cutler plan. Rather than acknowledge why the current system is failing more and more Mainers, the proposal opts instead to address existing revenue shortfalls by increasing sales taxes in a variety of ways. Contrary to Cutler’s claim that Maine’s most regressive tax is the property tax, analysis (see p. 27) by Maine Revenue Services confirms that sales and excise taxes on consumers are the most regressive taxes. If tax fairness is truly a high priority then we should be looking instead to the income and estate tax and/or to closing the door on ineffective tax loopholes as a primary source of funding. If sales taxes are going to be increased or expanded to services, then those changes must be accompanied by an aggressive tax credit to offset the impact on low- and moderate-income residents. LD 1496, the sweeping tax reform proposal designed by Senator Woodbury last year, included such a credit.

I am further troubled that the only mention of the most targeted and effective way to provide property tax relief – the Property Tax Fairness Credit – is as a source of revenue to pay for the plan. While it is true that an expanded homestead exemption means that fewer people will claim the Property Tax Fairness Credit (PTFC) resulting in a savings for the program, we should use any additional revenue to bolster the existing PTFC for those who need it most. This includes renters who get little if any relief from the expanded homestead exemption and may face even higher rents if their landlords see property tax increases and pass on those costs to their tenants. It also includes families who lost more than two thirds of the property tax relief they received previously under the old Circuit Breaker program before it was eliminated and converted to the PTFC.

The Cutler plan puts some important ideas on the table that merit further consideration. Expanding the homestead exemption makes a lot of sense as a way to shift some of our tax burden to seasonal homeowners and encourage residency. The argument that the current revenue sharing program does little to export taxes or ensure that the wealthiest among us are paying their fair share is a sound one. However, the plan’s design does not consistently reflect Cutler’s expressed concern for tax fairness across income groups and for economically vulnerable groups of Mainers. We can grow Maine’s economy and secure adequate revenue to make the kinds of investments in Maine’s people and communities that will help us do so. The Cutler plan is a thoughtful and detailed starting point for conversation on how best to do this. This is a conversation we look forward to engaging in over the coming weeks and months.

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