Tax breaks for Maine

The Legislature’s Taxation Committee is doing the right thing by preparing now for the onslaught of requests for the state’s budget surplus. A committee meeting this week produced a useful list of potential tax breaks that the public will have a chance to comment on this fall. Two conditions might guide the committee as it considers the alternatives: A tax break should have the greatest direct impact on Maine residents, and it should reduce pressure on the tax that weighs most heavily on residents, the property tax.

Property tax accounts for 45 percent of the three major forms of revenue for state and local governments, along with sales and incomes taxes. Residents have accurately noted for years that the tax is too high, but with scarce funds, there was little the state could do about it. The Legislature’s decision to not fully fund the school funding formula, forcing districts to rely more heavily on the property tax, made the problem even worse.

Assuming the recent gusher of revenue continues as a steady surplus stream, lawmakers can give Maine residents a tax break without also giving a break to summer people and tourists (who, no doubt, are lovely folks, but these are state revenues we’re talking about) by offering a homestead exemption. The exemption would remove an amount from the assessed value of a home for the purposes of taxation. For instance, a $20,000 exemption would reduce the taxable amount on a $75,000 home to $55,000. The $20,000 level would be the same for all homeowners so people who are in more modest homes would get thew biggest percentage of relief.

The state would then be charged with sending municipalities the lost income. Some towns, understandably, may be uncertain about trusting the state to send the amount of money it is supposed to. Another way of offering the homestead exemption is through a homestead credit on the state income-tax form. If lawmakers decided to cut back on the credit they would then have to explain their decision to everyone who filed a tax form, rather than simply to municipal officials.

A further and equally important way to help the property tax is to bring the school funding formula up to its proper level. For the last seven years, the state has placed a cap on the total ampount of money it sent through the formula, leaving districts few options except to cut programs or raise property taxes. They did both, with the result in some places of too-high taxes and too-few programs. The Legislature next session should have the means to help Mainers out of this problem.