Congressional Fiscal Shenanigans: O. Henry or Stanley Kubrick?

After weeks of gamesmanship, a minority in Congress succeeded in shutting down the federal government at midnight.  The full impact here in Maine is still uncertain.

We do know that on the cusp of peak leaf-peeping season, Acadia National Park will close and businesses on Mount Desert and throughout the surrounding area will feel the pain. Chris Fogg, executive director of the Bar Harbor Chamber of Commerce told the Portland Press Herald that 70 percent of local businesses have already reported losses of 10-20 percent when the park delayed opening the Loop Road for a month in the spring due to congressionally mandated sequester budget cuts.

“I think we are all hoping they will come to their senses and make a deal because the impact on our communities would be pretty significant,” he said.

The prevailing signs suggest that eventually they will. As President Obama put it last night, “One faction of one party in one house of Congress in one branch of government doesn’t get to shut down the entire government.”

The polls suggest that the government shutdown could be the tea party’s equivalent of “The Ransom of Red Chief,” O. Henry’s story, about two bumbling desperadoes who kidnap the child of a wealthy businessman and demand a hefty sum for his return. The scheme totally backfires when the kid turns out to be a menace, terrorizing his captors. The father replies to their ransom demand with his own ultimatum that they pay him to take his son back. Realizing they’ve made a huge mistake, the scoundrels eventually release the boy and beat a hasty retreat.

Sadly, such grandstanding has become standard operating procedure in Congress. And an even more dangerous threat looms on the horizon: if Congress fails to extend the nation’s debt ceiling before October 17, the federal government will default on its bills.

“Even if it’s a brief failure, it would forever be a signal to the market that you can’t trust the United States government to make its payment when it’s due,” Millan Mulraine, the director of United States research and strategy at TD Securities told The New York Times. “That would shake the foundations of the global financial system.”

Should the political theater carry over to the debt ceiling debate, the stakes will be much higher and the potential outcome more devastating. A better analogy for that eventuality won’t be O. Henry. It would be more like Stanley Kubrick. His classic Cold War black comedy, “Dr. Strangelove or: How I Learned to Stop Worrying and Love the Bomb,” is about how the deluded actions of political extremist General Jack D. Ripper trigger a “doomsday device” that destroys civilization.

It’s time for the radicals in Congress to end the government shutdown and take their fingers off the switch that could lead to an international economic meltdown.

New Report Highlights How the Affordable Care Act Helps Close Affordability Gap


This week the Kaiser Family Foundation released “An Early Look at Premiums and Insurer Participation in Health Insurance Marketplaces, 2014.” The report provides a summary of health insurance costs before and after federal Affordable Care Act subsidies kick-in for individuals who obtain coverage through the federal health exchange or health insurance marketplace. The premium for one of the middle-tier or “silver” plans for a 25 year-old, earning $28,725 living in Portland, Maine is $232 a month before federal subsidies become available. After the subsidies, the cost is $193 per month. For a 60 year-old earning the same income, the cost is $626 before subsidies take effect and $193 afterward.

This information highlights two very important points in the run up to the launch of the health insurance marketplace on October 1. First, individuals who currently lack affordable health insurance may find much better options through the marketplace. We should be doing everything we can in Maine to promote this opportunity. Second, as Gorman Actuarial predicted in its review of new health insurance laws the Maine legislature passed in 2011, it is the Affordable Care Act and not changes to how insurance companies set their rates that will ultimately reduce the number of uninsured people in Maine. Look no further than the pre-subsidy disparity in costs between older individuals and younger individuals for proof that absent the ACA things would be much worse for everyone but especially for older Mainers.

One final note. While the subsidies will be important in increasing affordability, they are not available to Mainers who will need them most as Governor LePage suggested in error at a press conference last week. Individuals living below the poverty line are not eligible for federal subsidies through the health insurance marketplace. That’s why it is vital that the state accept federal funds to expand Medicaid. Otherwise tens of thousands of Mainers will lack affordable access to a family doctor.

An Open Letter to Governor LePage

Dear Governor LePage,

You’ve got a jobs problem.

Since you took office, Maine ranks 46th in job growth and 47th in state economic growth. We’re last in New England in job growth and more than 100,000 Maine people are looking for work or are in search of full-time work.

You’ve got an unprecedented opportunity to improve Maine’s job picture. This isn’t theory, it’s fact.

What would you do if a large corporation called your office and said they were thinking of locating 3,100 jobs in Maine? I expect you would do everything in your power to roll out the red carpet. I suspect you might offer tax breaks and other enticements to seal the deal. I even doubt that you would care if the leader of the corporation were a Republican, a Democrat, or an Independent.

President Obama is calling Maine. He’s willing to locate 3,100 jobs in the state. He’s not asking for any tax breaks or demanding any special treatment. In fact, he’s offering to invest $250 million a year in Maine, provide health coverage to as many as 70,000 low income Mainers, and help larger Maine employers avoid costly tax penalties. Tax revenue generated by the new economic activity that these 3,100 jobs would create will offset the administrative costs associated with this deal. The Wall Street Journal, the Heritage Foundation, and Republican governors in other states affirm that this deal would be good for businesses in Maine and our economy.

You have suggested that perhaps we shouldn’t take this deal because there is no guarantee that the money that President Obama is offering will be there in the future. In truth, the same question could be asked of deals involving federal commitments that have created jobs in Maine and resulted in thousands of miles of roads, new bridges and water and sewer projects, destroyers built at Bath Iron Works, money for hospitals and health care providers, and scores of other federally-funded programs. When a company calls your office with an offer to locate in Maine, I don’t think you would reject the deal because they may close their doors at some point in the future. If the federal government went out of business, Maine and America would have far bigger problems on our hands.

There are plenty of other reasons why President Obama’s offer makes sense for Maine. Tens of thousands of people, the majority of whom are working, would qualify for health coverage. Everybody’s future health care cost increases would be lower. And if we refuse the President’s offer, Mainers will just be paying for health coverage for people in other states without getting any of the benefit ourselves.

The bottom-line is that the same argument you’ve been making about the job impact of repaying Maine’s hospitals is even more relevant here.

Rejecting federal health care dollars won’t create jobs. Accepting them will. Pick up the phone, take the money. Let’s get Maine’s economy back on track.

8 Points about the “Gang of 11” Tax Plan

Tax reform must do more for working families and to ensure funds to educate our children, build strong communities, and grow Maine’s economy

Recently a group of eleven legislators (five Republicans, five Democrats, and one Independent) has introduced sweeping legislation that according to the Bangor Daily News “slices the state’s individual income tax rate to a flat 4 percent — the highest rate now is 7.95 percent — and eliminates nearly all income tax deductions. The legislation also eliminates nearly all sales tax exemptions and raises the state’s 5 percent sales tax to 6 percent.”

MECEP commends these legislators for working together to come up with solutions to the Governor’s budget proposal and Maine’s outdated tax system. We continue to explore the details of this legislation to assess its impact on all Maine people. However, we cannot ignore the fact that the primary focus of the proposal is on increasing sales taxes in order to significantly reduce Maine’s income tax. With that in mind, we highlight eight concerns with this approach:

1. Maine’s income tax accounts for almost half of all General Fund revenue.

Dramatic cuts to the income tax will jeopardize our capacity to pay for education, health care, public safety, and other important services in the future. This is especially true since, as Maine recovers from the recession in the next few years, income tax revenues are expected to grow faster than any other revenue source. Cutting income taxes now is like selling an asset just as it is about to increase in value more than anything else in your investment portfolio.

2. Giving the wealthy and corporations large tax cuts paid for by massive sales tax increases is unfair to middle class and poor Mainers.

Maine’s tax system is already regressive, meaning low-income Mainers pay a significantly greater share of their income in state and local taxes than wealthier Mainers. The richest Mainers pay less than 10 cents on every dollar in state and local taxes, while the poorest 20 percent pay more than 17 cents on every dollar. The proposed flat 4 percent income tax, elimination of the estate tax, and reduction of the corporate tax will provide a huge windfall to wealthier Mainers and out-of-state corporations at the expense of low- and middle-income Mainers who will pay for it through a massive sales tax increase. For many Mainers, especially those who rent and small-business owners with multiple business locations, the bottom-line will likely be worse than it is now, despite efforts to make up for some of these costs through targeted tax rebates and improvements in the homestead exemption.

3. Cutting the income tax will not strengthen Maine’s economy.

States that enacted substantial personal income tax cuts in the 1990s had slower income and job growth and created jobs more slowly on average than more cautious states during the next economic cycle.[i] Investments in education and workforce development, transportation and high-tech infrastructure, and research and development – most of which require investments paid for with income taxes – are far more important to building a strong Maine economy.

4. Cutting the income tax will not keep wealthy residents from moving out-of-state.

Tax changes have little, if any, impact on people’s decisions to move from one state to another.[ii] For every story of someone who has left the state because of our taxes, there is a story of someone who has moved to Maine for our quality of life. The reasons people move have more to do with Maine’s natural environment, good schools, and vibrant communities offering a wide range of amenities, including many that are supported by investments that could be undermined by an income tax cut.

5. There are better ways to support small businesses and create jobs.

High-income households would benefit most from the proposed income tax cut, but most of them don’t own a small business so they aren’t in a position to create new jobs. Most small businesses earn such meager profits that cutting the income tax adds very little to their bottom-line and is not enough money to pay for a new employee’s salary. In fact, 87 percent of all U.S. small businesses either lose money or have under $50,000 in taxable income.[iii] The best way to support Maine small businesses and create jobs is to increase demand for the products and services they offer. Targeting tax relief to low- and middle-income Mainers and making sure Maine businesses are competing on a level playing field are better ways to encourage small business growth.

6. Not all property tax relief programs are created equal.

The tax reform plan acknowledges that different approaches to property tax relief result in different outcomes for Maine residents and businesses. However, their proposal does nothing to help the program that most effectively cuts property taxes for Maine residents who need it most – the Maine Property Tax and Rent Refund program. The legislature should invest more in this program and simplify the application process to ensure that hardworking Mainers who pay more than 6 percent of their income in property taxes get the break they need.

7. There are better, more targeted ways to tax nonresidents and out-of-state visitors.

Maine’s tax rates on meals, lodging, and rental car sales are below average in New England. Asking out-of-state visitors to pay more in these specific areas is much more targeted than a broad based sales tax increase that includes food and other basic necessities. Additional efforts to expand the sales tax to new areas should focus primarily on high-end services and recreational activities. This will generate much needed revenue that we can invest in Maine’s infrastructure and communities, making the state a more attractive place to visit and do business.

8. We still have a budget problem.

The tax reform plan is budget neutral meaning it does not provide additional funding for critical priorities like education, drugs for the elderly, public safety, general assistance, clean elections, and so much more. While the plan helps shine a light on ways to avoid some of the property tax increases in the Governor LePage’s budget proposal, Maine still faces a funding shortfall resulting from collapsing revenues in the wake of the recent recession and made worse by the 2011 tax cuts. There are better ways to address our immediate financial challenges, including repealing the 2011 income and estate tax cuts, making Maine’s state and local tax system more fair, raising revenues in more targeted ways, and reducing ineffective tax subsidies and exemptions.

[i] Michael Leachman, Michael Mazerov, Vincent Palacios, and Chris Mai. State Personal Income Tax Cuts: A Poor  Strategy for Economic Growth. Center on Budget and Policy Priorities, Washington  D.C., March 21, 2013.

[ii] See for example Jeffrey Thompson. The  Impact of Taxes on Migration in Maine. Political Economy Research  Institute. University of Massachusetts. Amherst, MA, April 2013.

[iii] Matthew  Knittel, Susan Nelson, Jason DeBacker, John Kitchen, James Pearce, and Richard  Prisinzano. Methodology to Identify Small  Businesses and Their Owners, Table 6. Office of Tax Analysis, U.S. Department of Treasury, Washington D.C., August 2011. Available on-line at:

Higher Education Equals Better-Paying Jobs

We all know it. The surest path out of poverty is a good job with benefits. But to get one of these good-paying jobs, Mainers need more education and training. To give low-income workers the skills they need, Maine must expand access to higher education.

The data are clear. States with lower levels of education have higher rates of unemployment and poverty. Yet Maine continues to fall behind many other states in educational attainment.

First, nearly 34 percent of Mainers ages 18 to 64 have only a high school diploma or equivalent; in all of the other New England states, more people have received some degree beyond high school.

Next, 24 percent of Mainers ages 18 to 64 have some post-secondary education, but no degree. The rate of degree completion in Maine is less than all other New England states, except Rhode Island.

Finally, only 35 percent of Mainers ages 18 to 64 have an associate degree or higher. Maine lags behind New England in rate of attainment for higher education.

Today, the vast majority of jobs that pay wages sufficient to support a family requires higher education. Without it, Mainers in low-paying jobs will stay there, relegated to working long hours, struggling to get by, and living in poverty. And we can no longer ignore that what is bad for our low-income families is also bad for the rest of Maine. It leaves employers without the skilled workforce they need, prevents businesses from expanding, and stunts our state’s economic growth.

For low-income working adults to succeed in higher education, they often need supports in addition to—and different from—those available to traditional students. Adult students with children to care for are hardest-pressed. In one state (Kentucky), the demand of family responsibilities was the most common reason given for leaving community college before earning a degree.

We used to understand this. Just five years ago, with bipartisan support, lawmakers put in place programs to address the barriers that working students face. But the governor and legislature have given these effective, and sometimes transformational, programs short shrift of late, such as:

Parents as Scholars (PaS) program: PaS helps Temporary Assistance for Needy Families (TANF)-eligible parents earn two- or four-year college degrees. It pays for support services that working parents need like child care, transportation, and occupational expenses. Thousands of Maine parents went back to school under this program, earning credentials, and getting off welfare. But enrollment dropped dramatically when legislatively-imposed time limits for TANF kicked in in 2012 and individuals lost their TANF benefits and with them their opportunity to finish their degree.

Competitive Skills Scholarship program (CSSP): CSSP provides grants to low-income students not only for tuition and books, but also for child care and transportation, which are critical for adult students to enter and stay in school. CSSP has the added advantage of being designed to educate students in high-demand careers like health care, computer technology, and library science and thus meeting Maine employers’ needs as well. In his latest budget this year, the governor has proposed cutting CSSP by a half million dollars.

Child Care programs: Maine’s Head Start and Child Care Subsidy programs ensure high quality child care that allows parents to work and go to school. Governor LePage and the 125th Maine Legislature cut $2 million in Head Start funding (taking over 200 children out of the program) and cut $2 million from the child care subsidy program (affecting 1,200 children).

Education is fundamental to higher wages and lower poverty. Unfortunately for working adults going back to school, the hurdles often prove too large to overcome. What’s more, the work supports needed for success either do not exist or fall to state budget cuts. Wise state policies and smart public investments like PaS, CSSP, and child care programs can remove barriers to education that will help low-income working families prosper.

Two Steps toward Tax Fairness

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.

Stop Tax Increases on Maine Working Families and the Middle Class

During the 125th Maine Legislature, Governor LePage insisted on more than $430 million in tax cuts that mostly benefit wealthy Mainers. He got his way. Wealthy Mainers got enormous tax cuts. Now the bill is due.

The Governor plans to balance the budget entirely on the backs of local communities, K-12 schools, and low- and middle-income Maine residents. He is asking for virtually nothing from wealthy Mainers.

This week is our chance to tell Governor LePage and Maine legislators that it is unacceptable to balance the budget by raising taxes on the poor and the middle class and slashing funding for our local schools and communities. Wealthy Mainers must pay their fair share.

On Wednesday March 13, the Legislature’s tax and budget-writing committees will accept public comments on the tax provisions in the Governor’s proposed state budget for the two-year period beginning July 1st, 2013. Approximately $430-440 million of the $881 million budget gap is due to income, pension, and estate tax cuts enacted over the past two years. Remember, the vast majority of the benefits of those tax cuts went to high-income families.

  • 2011 Income Tax Cuts: According to Maine Revenue Services data, over 40% of the benefits of the income tax cuts went to the richest 10% of Maine households- those with expanded incomes over $121,000. Over 60% of the benefits of the income tax cuts went to the richest 20% of Mainers.
  • 2011 Estate Tax Cuts: These tax cuts only apply to Mainers with estates worth more than $1 million, and the vast majority of the benefits accrue to the heirs of multi-million dollar estates.
  • 2012 Pension Tax Cuts: These tax cuts disproportionately benefit wealthy retirees with little or no benefit to low- and middle-income retirees. 58% of the benefits went to the richest 20% of households and 75% of the benefits went to the richest 30%. Seniors living only on Social Security retirement income got nothing.

Remember, Maine’s state and local tax system favored the wealthy even before these tax cuts were enacted. In 2009, the wealthiest Mainers paid 10 cents out of every dollar they earn in state and local taxes. Everyone else paid more. This situation was made worse by all of these tax cuts for the wealthy.

Now the bill for all those tax cuts is due. Here’s how Governor LePage plans to fill in a $430+ million dollar budget hole without making wealthy Mainers pay their fair share in taxes:

  1. Cut funding for K-12 schools and shirk the state’s voter-mandated responsibility to pay 55% of the bare-minimum cost of educating Maine kids. Right off the bat, the Governor was able to knock the $881 million budget gap down to about $630 million by choosing to “flat-fund” K-12 schools. In inflation-adjusted terms, that means school funding will be cut. But in addition to “flat-funding” schools, the Governor will “save” another $28 million over the biennium by forcing property tax payers to pay for half the cost of a teacher retirement program that municipalities and property tax payers had no hand or say in creating.
  2. Force higher property taxes with cuts to basic public services by slashing routine aid to all of Maine’s 490+ towns and cities. The Governor’s plan eliminates all state revenue sharing with towns and cities. This saves the state $283 million over the biennium and forces property tax payers to cover the loss, through some combination of property tax increases and lost municipal services. Since property taxes hit low- and middle-income homeowners and renters especially hard, this is a favor for Maine’s highest income households and a burden for everyone else. Even if towns take a balanced approach to covering this lost revenue from the state, local property tax payers will see their property tax bill increase by at least $80 per year, on average. Many middle class families will see much larger increases.
  3. Raise taxes on low-and middle-income Maine residents by eliminating over $80 million in property tax relief. Even in the unlikely event that towns manage to cover large losses in state aid without raising property taxes, middle class Mainers face a tax hike of at least $80 million over the next two years under the Governor’s plans to eliminate property tax relief through the Maine Residents Property Tax and Rent Refund Program (aka “Circuit Breaker”) and the Homestead Exemption. Out-of-state folks who own second homes in Maine will spared, but low-income and middle class homeowners and renters will not. The average property tax hike for homeowners who claim the homestead exemption will be about$120 per year. Up to 75,000 low- and middle-income Mainers—including seniors—who currently claim a partial property tax or rent refund under the circuit breaker program will see an average tax hike of about $479 per year.
  4. Use a stealth accounting trick to increase income taxes for the middle class. Governor LePage’s budget proposal also saves almost $9 million over the biennium by suspending the automatic inflation adjustments for Maine’s income tax brackets. This will increase taxes by about $49 for Maine residents who earn over $20,000 per year. Middle class families will pay for most of this tax increase.

Remember, the median Maine taxpayer got about $150 per year from the “largest tax cut in Maine history”. The poorest 1 out of every 2 Maine families got an average income tax cut of about $50 per year. Compare that to the slate of tax increases in the Governor’s proposed budget outlined above.

This plan to balance the budget on the backs of schools, communities, and low- and middle-income Maine taxpayers is unacceptable. Now is the time to tell our lawmakers.

Sequestration: A Disaster for Maine Working Families

Close to 7,000 Maine jobs are at risk if federal budget cuts slated to take effect on March 1 occur. That conclusion is based on a report authored by Dr. Stephen S. Fuller, a professor at George Mason University.

The Coalition on Human Needs (CHN) has also conducted an analysis of the projected impacts on Maine from federal budget cuts known as sequestration. CHN notes that these “indiscriminate cuts come on top of a 15.9 percent cut in federal funds to Maine from 2010 to 2012.”

Some of CHN’s Maine findings:

  • 1,800 Maine women and children will lose WIC nutrition benefits
  • 631 low-income families will lose rental housing vouchers
  • 356 Mainers with disabilities will not be able to enroll in vocational rehabilitation services
  • $620,000 for housing and emergency shelter will be denied
  • Low Income Home Energy Assistance Program (LIHEAP) is expected to average only $375 per household served in 2013, down from $405 in 2012
  • More than $2.7 million will be cut from Title I K-12 education funding for schools in low-income communities

As CHN adds:

This does not have to happen. Increased revenues from wealthy individuals and profitable corporations as well as savings from reducing waste in the Pentagon and elsewhere can prevent these cuts. In fact, Senate Majority Leader Harry Reid (D-NV) and other senators outlined a plan on February 14 (the American Family Economic Protection Act) that would replace the 2013 cuts by setting a minimum tax rate for millionaires, closing other loopholes, gradually cutting the Pentagon and ending certain farm subsidies. It will be up for a vote during the week of February 25.

Phone, write or e-mail our representatives in Congress and let them know how you feel about these cuts!

U.S. Senator Susan Collins
413 Dirksen Senate Office Building
Washington, DC 20510
Phone: (202) 224-2523
Fax: (202) 224-2693

U.S. Senator Angus King
188 Russell Senate Office Building
Washington, DC 20510
Phone: (202) 224-5344
Fax: (202) 224-1946

U.S. Representative Chellie Pingree
1318 Longworth House Office Building
Washington, DC 20515
Phone: (202) 225-6116
Fax; (202) 225-5590

U.S. Representative Mike Michaud
1724 Longworth House Office Building
Washington, DC 20515
Phone: (202) 225-6306
Fax: (202) 225-2943

Booze, Bonds and Budget Balancing

“A foolish consistency is the hobgoblin of little minds.”
―Self-Reliance, Ralph Waldo Emerson, 19th American essayist

All leaders need followers. Despite Emerson’s call to be nonconformist, political leaders cannot say one thing and do another, at least not if they want people to follow them. They need to demonstrate reasoned thought and action.

Governor LePage has always articulated his principles, clearly and forcefully over and over. Until now. Now the water is muddier than the Mississippi.

Governor LePage says that the size of government needs to be smaller and that government shouldn’t get in the way of private business.

“We are shrinking the size of government. Our private sector is growing—but not rapidly enough. We must do more.” ―Governor LePage, Radio Address, June 25, 2012

But this week he proposed that state government take back oversight of liquor sales, which had previously been outsourced to a private company.

Governor LePage has repeatedly asserted that Maine state government shouldn’t spend money it does not have.

“They recognize as do I that government must change and begin to live within its means.”  ―Office of Governor Paul LePage, Press Release, February 11, 2011

But now he wants to borrow money (plus interest) to pay ongoing state operating costs to be repaid based on future projected revenues from liquor sales in 2014 that it doesn’t yet have.

Governor LePage has consistently declared that Maine state government is not in a position to take on long-term debt from borrowing.

“While these bond proposals were authorized by legislators, it does not mean that we need to spend the money. “Even with the voters’ authorization to borrow this money, my administration will not spend it until we’ve lowered our debt significantly. That could be several years.” ―Bangor Daily News, May 25, 2012 quoting Governor LePage

Yet, this week, the Governor proposed that the state borrow money to construct a new correctional facility.

Governor LePage has contended that Maine state government should not borrow funds without voter approval.

“All this borrowing needs to have voter approval.” LePage said he is shocked at a vote by the legislature’s Appropriations Committee to kill a bill requiring an advisory referendum on bonds sold by the Maine Educational Loan Authority and said he opposes the measure they did approve requiring voter approval for some bonds issued by the Maine Government Facilities Authority. ―Bangor Daily News, April 29, 2012 quoting Governor LePage

Yet, this week, the governor proposed that the state borrow the money for the new correctional facility through Maine Governmental Facilities Authority without voter approval.

It seems that the governor’s words no longer match his deeds. And our state’s fiscal well-being hangs in the balance.

An Avoidable Budget Crisis

Despite what Governor LePage had to say about protecting the needy when he released his budget last week, the reality is far different. Low- and middle-income Mainers will see their economic security further eroded by property tax increases and deep cuts to basic services if lawmakers go along with his plan.

This budget proposal is the culmination of a four-year, two-step process that began in 2011.

Step 1: Enact income and estate tax cuts that mostly benefit the wealthy and doubled the size of the budget gap confronting the 126th Legislature. Step 2: Propose a solution that involves cutting tens of millions of dollars in tax relief for low-income Maine families, flat funds Maine schools, cuts state aid that funds local services like public safety and road repair, eliminates access to emergency assistance, prescription drugs, and health care for thousands of vulnerable families, and puts Maine on the path to the highest property tax burden in the nation.

The Governor’s budget would require low- and middle-income families to pick up the tab for this avoidable budget crisis while giving the wealthiest Maine families and businesses —who benefited the most from the tax cuts — a pass.

His proposal would eliminate tens of millions of dollars in property tax relief for low- and middle-income Mainers while at the same time forcing dramatic property tax increases and deep cuts to basic public services by cutting routine aid to Maine’s towns and cities.

Meanwhile, Maine’s wealthiest families and largest corporations and businesses would continue to pay a smaller share of their income in taxes than everyone else.

Maine’s state and local tax system was already unfair to the poor and middle class. The disparity is reflected in the chart below, but since data are only available up to 2009, it doesn’t reflect tax cuts and shifts to property taxes made by the 125th Legislature, which made this situation even more unfair.

MECEP will provide a detailed look in the days ahead at the Governor’s proposed budget and its impact on Maine people and our economy. In the meantime, it’s important to understand how we got here.

It started with a depression-sized collapse in state revenues caused by the severe economic downturn of 2007-2009. While the national economy shrank by 5%, Maine General Fund revenue—mostly comprised of income and sales taxes—fell by about 11%.

Five years later, the recovery from that economic disaster isn’t going very well. Annual general fund receipts are still $364 million below the pre-recession peak. For those who think General Fund revenue was too high before the recession anyway, it’s important to understand that it is $304 million below the modest long-term growth trend that prevailed for more than the past 20 years (annual growth averaging $32 million, or anywhere from 1% to 1.3%, after adjusting for inflation).

All told, the recession accounts for about 70% of the state’s $881 million budget gap. The rest is a direct result of the actions of Governor LePage and Maine legislators in 2011 and 2012. At a time of historically high unemployment and with nearly one in four Maine children living in poverty, with tens of thousands of Maine families struggling to stay warm, stay fed, stay healthy, and find employment, the governor and legislature severely aggravated the crisis by adopting a budget that severely cut health care and other programs Maine families depend upon and enacting a slew of tax cuts that overwhelmingly benefit the wealthiest families and corporations in Maine.

When assessed in the broader context of the state tax and budget system, those tax cuts were a raw deal for about 2 in 5 Mainers. The poorest 40% of Maine households—those who are more likely to have lost a job, lost access to health care or child care, and can least afford to see their taxes go up— will actually see their overall state and local tax bill increase in 2013, based on conservative estimates by MECEP.

Now, with a budget gap that’s twice as big as it would have been without the tax cuts enacted over the past two years, the other shoe has dropped with the Governor’s new budget proposal. This time, it’s middle-class families’ turn to pay up. MECEP plugged some of the numbers from the new budget proposal into our October 2012 analysis of the consequences of the 2011 tax cuts.  Four out of five Mainers—everybody but the richest 20% ­—can expect to pay a higher overall state and local tax bill in 2015 if the proposal passes as is. The reason: property taxes hit low- and middle-income families especially hard, since property taxes take a much greater proportion of their income than they do from high-income households.

Even under cautious assumptions about how municipalities respond to severely reduced state funding, property taxes and rents would rise considerably for low- and middle-income Mainers as local officials raise property taxes just to maintain services that have already been cut to the bone by the recession. In addition, under the Governor’s plan, tens of millions of dollars in property tax relief targeted to low- and middle-income Maine families will disappear to pay for tens of millions of dollars in tax cuts for well-off Mainers and businesses.

Governor LePage and his allies say his income tax cuts removed 70,000 low-income Mainers from the tax rolls. The governor’s own revenue office reports  that the average Maine household making less than $14,000 per year saved about $7 as a result of the 2011 income tax cuts. These same families will pay many times more than that in increased property taxes.  It’s important to stop looking at each tax change in isolation and start examining the whole picture.

MECEP will continue to analyze the governor’s budget proposal and report our findings in the days and weeks ahead.  And we will be working with our partners to advocate for a budget that restores tax fairness, protects education, health care and other programs critical to families struggling in our weak economy and encourages shared prosperity.