Jobs, wages and the tax crunch

Jobs in Maine have failed to climb back to pre-recession levels and the wages of those still employed are barely keeping pace with inflation. The increasingly heavy burden of government taxation, coupled with rapidly climbing health care cost and other expenses, result in further erosion of disposable income. The end of the current economic recovery will likely see Mainers worse off financially than they were at the beginning of the last recession. We are caught in a crunch of few jobs, low wages and high taxes.

Municipalities, particularly local education budgets, suffer greatly as the Legislature finds it cannot afford to share much of the state revenue with local governments. Towns faced with declining support from the state have increased property taxes to the point of provoking taxpayer revolts. With a state budget shortfall of more than $325 million projected for the next biennium, the future looks very bleak.

A bulletin from the Maine Municipal Association to legislative candidates illustrated the extent of the problem for the towns. From 1986 to 1995, income-tax revenues increased roughly 60 percent and sales-tax revenues went up 80 percent, but property taxes in the state increased a whopping 99 percent. Given that the property taxes are levied by the municipalities, the MMA, an association representing local government, has cause to be concerned. Further cuts in state aid to the towns will obviously hit its members hard.

Unfortunately, the MMA failed to examine the root causes of the problem with revenue which fails to keep pace with government spending. It also failed to suggest solutions other than trying to find more ways to squeeze more blood out of a pretty dry turnip. The MMA bulletin seemed more interested in suggesting alternative ways for the Legislature to increase state revenue, such as eliminating sales tax exemptions or repealing the income tax cap. With increased revenue for the state, the towns could feel more comfortable that they would continue to receive state aid for education and other services.

The problem of a lack of adequate revenue for government services is caused by government spending at all levels growing much higher than the rate of inflation and by a lack of growth in jobs and personal income. Given a rapidly growing economy with jobs and wages increasing, we might be able to afford bigger government programs. Without more better-paying jobs, government spending becomes a tremendous burden and a disincentive to a vigorous economic climate.

State and local government spending has increased, on average, about 6 percent a year for the last 10 years, or about double the rate of inflation. The state lost thousand of jobs during the 1990 recession and as yet is still several thousand jobs below the 1989 level. We are still seeeing major losses of jobs, such as UNUM relocation of jobs to South Carolina, where its employees, paid the same as in Maine, received greater take-home pay, thanks to the lower taxes in that state. We are now watching, almost helplessly, while Gerber closes down in Aroostook County to move to Tennessee and we wonder if the effort to save 350 jobs at the Hathaway shirt factory in Waterville will be successful.

Wages of the average worker are lower than in 1989, after adjusting for inflation. While pre-tax wages have a hard time keeping up with even a low inflation rate, employers are seeing their costs of employment going up faster than inflation. This is due, in part, to the rapidly rising costs of health care insurance. If employers try to avoid these increased costs by having employees take on a larger share of the premiums or pay higher deductibles, the employer benefits, but only at the expense of the employee’s disposable income. Employers also incur additional expenses thanks to well-meant state regulations designed to protect employees or otherwise serve the people of the state, but often at the expense of jobs, since businesses cannot indefinitely absorb the costs of additional regulations.

There is no quick or easy path to improving the financial lot of the average Maine family after taxes, but we must begin moving down that path now, before it is too late. We need to examine why we have government frowing at twice the rate of inflation and move to correct the problems we identify. This includes controlling the growth of government at the municipal level, some of which is the result of state mandates.

We need to replace existing “must carry” health care mandates with requirements to offer optional coverage so as to reduce dramatically the costs of health care insurance premiums. State regulations and the bureaucracies enforcing those regulations need to be scrutinized in detail to see if we can eliminate some of them, streamline or consolidate others, and still insist on not giving up essential protection of the environment or worker safety, to mention only two important concerns. We need to cut income tax rates, which are now 18 percent higher than the national average as a percentage of personal income. Sales tax rates, “temporarily” increased in 1991, need to be scaled back significantly.

If we adopt such measures, which are by no means radical, we will spur the economy of the state, increase the number of jobs and increase wages. We will then have a bigger tax base and, with a smaller government, a much smaller tax burden for the individual taxpayer.

Mainers, particularly property taxpayers, cannot afford the current level of government spending. If we “simply” get Maine’s economy back to its 1989 level, we could afford the expensive government we now have. If we exceed 1989’s economy, cut nonessential government spending, and reduce some of the regulatory and mandate costs to businesses, their employees and local governments, we can greatly enhance the quality of life for the people of Maine. We may even then be able to put more money into those progrmas which could yield dividends in the future, such as research and development in the university system or educating our children to compete in the modern world.

Scott Baxter of Brewer is the Republican candidate for the Maine Senate in District 6.