EXCISE REFORM ILL-TIMED

Mainers have long suspected, thanks to anecdotal evidence and personal experience, that they pay a premium when they buy a new car. Now, a study commissioned by the Legislature confirms their worst suspicions: Maine’s new vehicle excise tax is, in fact, the highest (tied with Arizona) in the nation.

Facts are always good, even if they add up to bad news. This bad news, though, is hardly a surprise, so the sense of alarm and urgency that accompanied the release last week of the report by the Task Force to Study the Municipal Excise Tax seemed a bit calculated. Maine has a lot of taxes that are high, rates are unfairly skewed many places throughout the tax code. Before lawmakers get too agitated about righting this particular wrong, they should take care not to create new ones.

There is a wrong. Maine’s excise-tax rate the first year is 2.4 percent, adding $420 to the cost of a $17,500 car. The tax drops rapidly as the new car smell fades – nearly halved by the third year, down to a mere $70 by the sixth year. Since the age of a vehicle has nothing to do with roadway wear and tear (road maintenance is the justification for the 73-year-old tax), this discrepancy has been aggravated by the rising cost of new cars and the enhanced longevity of old cars. Factor in the enhanced safety, fuel efficiency and lower emissions of new cars, and it makes no sense to penalize the purchase of something that, in many important ways, is better.

Another factor is that the excise tax is a vital source of municipal revenue – $158 million in the last fiscal year, the equivalent of 2.09 mills. Without the excise tax, the property tax on the median-priced home in Maine would increase from $1,550 to $1,730.

The current excise-tax schedule is unfair and shortsighted. Towns and cities rely on the excise tax as a way to raise revenue to pay for services – such as roads and public safety – that spreads the burden beyond property owners. It’s a conflict that the two primary recommendations by the task force will do nothing to resolve.

In order to keep the tax rate adjustment revenue-neutral – that is, no net loss of dollars – the task force proposes lowering the new car rate while increasing it on cars five years old and beyond. Few people drive old cars by choice. It would be hard to find a better example of regressive taxation than shifting the burden to people who are forced by necessity to buy from the fringe of the used-car lot.

The inequity of this shift, the task force suggests, would be alleviated in time with the permanent downward adjustment of the entire excise-tax schedule. There is no recommendation, however, regarding protecting municipalities from having to fill the void with increased property taxes.

It is a fundamental concept of public policy that sweeping changes are enacted in good times – that’s why Congress waited until an economic boom of historic proportions to enact welfare reform. It remains mystifying why, during several years of economic health and robust revenue surpluses that could have provided the necessary cushion against short-term upheaval, the Legislature made the issue of comprehensive tax reform wait in line behind specific tax cuts that clearly have done little or no good.

Now, with the economy struggling and revenues still in shortfall, the Legislature is making a rush toward another narrow reform that Maine’s middle-class and poorer citizens, as well as its hard-pressed cities and towns, cannot afford.