The Sunday Telegram Analysis of LePage’s Tax Plan is Fatally Flawed. Ignore it.

January 26, 2015 by

The table that appeared on Page 10 of this week’s Maine Sunday Telegram is fatally flawed due to a variety of calculation errors and faulty methodology. It grossly overstates the benefits of the LePage tax plan. Readers should ignore it and wait for higher-quality analysis from Maine Revenue Services and the Institute on Taxation and Economic Policy.

The most obvious flaw relates to the calculation of current income taxes paid by a sampling of “typical” taxpayers. The newspaper relied on a tax calculator that did not reflect current Maine law. As a result, the calculations are based on personal exemption and standard deduction amounts that are much lower than the actual amounts in 2014 Maine law. They also don’t account for our current bracket structure which includes a zero percent income bracket.

These errors are enormous and they work to overstate the current tax that the illustrative taxpayers in the table would actually pay in 2014. As a result, the article projects income tax cuts under the LePage proposal that are hundreds of dollars larger than they would actually be for these prototypical taxpayers.

For example, correcting for these errors, the family of three making $78,900 per year would actually face an income tax bill of $3,059 in 2014, not $3,929 as shown in the table that appeared in print on Sunday. That means that their actual income tax cut would be $1,052, not $1,922 as shown. That simple error tripled the net estimated tax benefit from LePage’s plan for this prototypical middle-class family.

The Telegram has now revised the online version of its analysis to correct these egregious mistakes, but there are many more errors and omissions in its analysis that remain uncorrected.

For example, the calculation of the sales tax increases forecast a smaller sales tax increase than could reasonably be expected and a far larger overall tax cut resulting from LePage’s proposal as a whole.

  • First, the Sunday Telegram analysis does not account for any of the expansion of the sales tax base: the expansion of the sales tax to a variety of new consumer services. This base expansion accounts for about 32% of the total $424 million annual sales tax increase in 2019 (the income tax cut is based on 2019, so the sales tax increase should be as well), but that effect is absent from the table. That’s a $128 million dollar tax increase that is missing from the Telegram’s analysis.
  • Second, the newspaper uses the wrong baseline to calculate the sales tax changes. The baseline should be current law, not current policy. The current-law baseline is the one that the LePage Administration and the nonpartisan legislative fiscal office use to calculate the fiscal impacts of tax proposals. Under current law, the sales and use tax automatically declines from 5.5% to 5% in July, and the meals and lodging tax automatically declines from 8% to 7%. The Telegram uses the 5.5% and 8% figures that will no longer be in effect unless the law changes as the baseline for its analysis, which vastly understates the impact of the sales tax law changes that LePage proposes in his plan.
  • A sales tax rate increase from 5% to 6.5% means that the tax bill for a Maine consumer with consistent purchasing behavior will increase by about 30%, and that’s before we even count the sales tax base expansion, which the Telegram omitted. But none of the five case studies in the Telegram’s analysis see an increase in their total annual sales tax bill of more than 9%. It’s not clear exactly how the newspaper calculated taxable consumer expenditures, but something is obviously wrong here. Yes, out-of-state residents will bear some portion of the Governor’s proposed sales tax increase but certainly not as much as the Telegram’s analysis suggests.

Addressing these issues would result in significant increases in sales taxes for the typical taxpayers depicted in the table.

Of course, another obvious problem with the Telegram’s depiction is that it doesn’t account for other property tax increases that will result from shifting costs for education and public services on to towns and cities. This occurs in multiple ways under the current plan. First, the elimination of revenue sharing is effectively a $167 million cost shift to towns. The proposal to allow municipalities to collect some property taxes from large nonprofit entities and telecoms businesses doesn’t come close to offsetting that loss. Second, the LePage tax cuts significantly reduce total state revenues in the future and will likely trigger cuts in education, health care, and other public services or shift the cost of these items to property taxpayers even more. It’s very difficult to account for these tax shifts to cities and towns—not even Maine Revenue Services will attempt that analysis so it’s understandable that the Telegram left that out of their analysis. To their credit, they did include some discussion of it in the text of the article.

I have been in contact with Telegram staff today, working to explain and correct all of these errors. I appreciate their willingness to share their methodology and admit some of the errors in their analysis. But making revisions to the online version of the story and perhaps issuing a correction buried somewhere in tomorrow’s paper cannot undo the egregious mistakes they made in a story that appeared on the front page of the biggest Sunday newspaper in the state. Informed debate on such major changes to state tax policy demands much more accurate analysis than the Maine Sunday Telegram presented.

There are entities like Maine Revenue Services and the Institution on Taxation and Economic Policy that have the analytical ability and organizational capacity to estimate the impacts of complex tax changes. We should wait until they’ve done their work before coming to conclusions about who would win or lose—and by how much—under LePage’s proposal.

 

 

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