3 unsavory ways to pay for eliminating Maine’s income tax

May 5, 2015 by

Maine’s Constitution requires a balanced budget. Eliminating the state’s income tax, as the governor proposes to do in 2020, will blow a $1.7 billion hole in the state’s budget. That represents close to half of the state’s general fund budget. Here are 3 unsavory ways legislators can balance Maine’s budget without an income tax:

  1. Eliminate all state funding for K-12 education and higher education and half of state funding on health care for children, seniors, and people with disabilities. In FY2014, Maine spent close to $1.2 billion on K-12 and higher education and $750 million on health care for children, seniors, and people with disabilities. Eliminating funding for education and cutting health care funding in half would generate enough savings to cover the cost of eliminating Maine’s income tax. If legislators don’t want to do this, they could eliminate all state employees and all other departments and agencies funded through the general fund, including the departments of agriculture, attorney general, corrections, economic and community development, judiciary, and inland fisheries and wildlife. But doing so still wouldn’t generate enough savings to cover the entire cost of eliminating Maine’s income tax.
  2. Raise property taxes by 40%. If lawmakers chose to eliminate state funding for K-12 education property taxpayers would have to fund the entire cost of educating Maine children. At current funding levels that means property taxpayers would have to contribute close to $1 billion toward education. That roughly translates to a 40% property tax increase across the state. Of course, communities that are less well-off and currently benefit from a higher share of state aid will incur even more substantial property tax increases to pay for lost state aid.
  3. Raise the sales tax rate to 11.5% and the meals and lodging tax rate to 16%. Rather than eliminate entire departments in state government or shift education cost to property taxpayers, legislators could instead choose to increase the sales tax to offset the lost income tax revenue. Doing so would require them to more than double both our current 5.5% sales tax and our current 8% meals and lodging tax.

None of these solutions is plausible and that’s the point. The governor can’t even get his own party to sign on to his plan to reduce Maine’s income tax by a third and pay for it with a combination of sales and property tax increases. Not only is the proposed elimination of Maine’s income tax a bad idea that would be a boon to wealthy Mainers, it is a reckless gimmick that does little to advance real solutions for Maine people.

The legislature should quickly dispense with the governor’s proposal to amend Maine’s Constitution and get back to the task at hand – working in a bi-partisan manner to craft a two year budget that incorporates some of the best ideas from the A Better Deal for Maine plan and the governor’s original budget proposal. The clock is ticking . . .

 

 

 

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