With Spending Decided, Tax Reform Remains

 

Maine must have spending reform and tax reform.  Both demand bold steps, and constant vigilance.  As of this writing, with three days left in our legislative session, we have taken one step. 

 

Spending has been decided. 

 

The state budget was approved by over 80% of Maine’s leaders, including the entire Sagadahoc County delegation.  More work remains, but we can be proud of the reforms we moved forward.

 

This week, the question is whether our tax code needs revision. 

For decades, economists have been saying it does.  They argue, for instance, that Maine is a cheap date:  that we ask far less of our nonresident visitors than they would willingly pay.

 

Last week, after 5 months of intense and public work, the Legislature’s Taxation Committee proposed a bold and bipartisan plan.  It shifts the burden slightly off of Mainers, by requiring those from away to chip in slightly more.

 

The plan cuts our property and income taxes, and expands our sales tax to services as well as goods.  With this shift, visitors would chip in $140 million more, while still paying at rates lower than most other states.  Residents – you and I – would pay $140 million less. 

 

Here's the downside:  visitors and Mainers alike would pay a little more in sales taxes.  Also, if I own a barber shop and you own a ski resort, we’d also need to collect 5% sales tax and remit that money once a month, like other businesses.  But if I sell hair products, or you sell ski goggles, we're probably filing monthly already. 

 

The upside:  visitors chip in more, and you and I save several hundred dollars off our income and property taxes.  Our homestead exemption doubles, as does our eligibility for the property tax or rent refund.  Our income tax rate drops to 6% from 8.25%, with additional, refundable credits for those in the low-income brackets.

 

Taking into account both increased and decreased taxes, the average Mainer’s total tax effort is cut by $200-$400.

 

Initial reaction to the plan has been mixed.  Those who would need to remit monthly sales tax tend to focus on this aspect, and oppose the shift as a bad one.  Realtors, also, have opposed the plan.  They are concerned that the real estate transfer tax is doubled (it is currently less than 1/3 of New Hampshire's rate), and were told at first, wrongly, that mortage interest deductions had been eliminated.  The Chambers of Commerce, in particular, have been highly active against the proposal. 

 

Support for the plan has been most notable from AARP, and from the Maine Municipal Association.  These groups argue that the plan is long overdue, and hail it as a "well balanced and comprehensive tax reform package," with real relief for real Mainers.

 

By the time this letter goes to press, the fate of this shift may have been decided.  If tax reform fails, Maine will collect money as it always has.  If it passes, a small part of the burden will shift to out-of-staters.  In either case, overall state spending will remain the same.

 

However we make the bed this week, we will soon lay in it.  If tax reform fails, it’s the same old sheets for two more years.