Property vs. sales

Maine needed seven years to dig itself out of its budget hole and show a surplus in Augusta. State lawmakers seem determined to spend the windfall in the next month. For the sake of the state and its taxpayers, they should slow down.

The current surplus for Maine government, now near a projected $200 million for the year, is the product of an unemployment rate that has dropped to a 30-year low and and an economy setting records for productivity. Yet lawmakers are acting as if these unusual circumstances are going to go on forever. They’re talking about making a permanent change of taking a penny off the sales tax, a $120 million reduction that favors the rich and tourists.

Why set up future legislatures for acrimony over budget shortfalls, especially when Maine’s unusually tailored sales tax is neither regressive nor particularly onerous? What is painfully high and regressive, on the other hand, is the property tax. If lawmakers want to tell the folks back in the district that they have done someting about taxes, they should set aside a portion of the surplus to reduce this tax.

Supporters of the sales-tax reduction say they support reducing the tax because it ensures that the savings go directly to taxpayers. It does, but compare what the average family in Maine spends most of its money on — mortgage or rent, food, heat — with what is taxable. Essentials are largely tax exempt; discretionary purchases, made largely by people who can afford them, are taxed. Guess who benefits from a sales-tax cut?

Property taxs, however, are a different matter. People on fixed incomes, folks living in areas of growing popularity, everyone caught by the state’s failure to adequately fund education pay heavily through the property tax. Last legislative session, there was widespread agreement that the state needed to do something about the tax.

The surplus represents an opportunity to lighten that tax load. And there’s a way to do it while sending the savings directly back to taxpayers: a homestead exemption, which removes the first $10,000 or $15,000 of property value for tax consideration. Because the number is fixed, and not based on a percentage of property value, the people with less-expensive homes — poor people — derive more benefit from the exemption.

Because the state cannot accurately predict how much revenue it will have in the future, the exemption should be modest enough to allow to decreasing contributions from taxpayers. It can be further enhanced, however, by the state increasing its share of general purpose aid to education, thereby reducing the local share.

Everyone has a suggestion for spending the state’s surplus. Consider this a word of caution: Don’t count on the surplus forever by committing the state to a cut it cannot sustain. After that, lawmakers should try to offer relief for the heaviest tax that will provide those most in need with the greatest benefit. The property tax meets that description.