MAINE TAX PRIMER

No matter what new revenue forecasts look like for the next Maine Legislature, a major tax overhaul will be part of the debate in Augusta beginning January.

The University of Maine last week offered an excellent way to get the debate started properly by providing the state with a primer on what tax reform could mean, how it is tied to economic development, how Maine’s taxes compare with its neighbors’ systems and what options the state might pursue. Its timing could not have been better.

The report, called Tax Policy and Economic Development in Maine, was produced by the Margaret Chase Smith Center for Public Policy. It was written by Matthew Murray of the University of Tennessee, a nationally known tax economist who has presented ideas about taxation to Maine lawmakers before.

All legislators have been sent a copy of the report and they should read it closely because there will be a test. The test is whether the Legislature can intelligently restructure the state tax system so that it fairly and consistently funds important services, encourages economic development and responds to changing conditions.

To accomplish this, lawmakers must be better informed about the current tax system, know where Maine stands not merely in its tax burden but in a variety of measures and know what components are needed for a good replacement to the current system. Some of the recommendations from Professor Murray will surprise lawmakers, starting with this perspective: “Taxes are not breaking the back of the Maine economy, nor would tax reform and reductions in tax burdens likely lead to an economic renaissance in the state. But taxes are part of the problem and part of the solution.”

Some other observations from the report: Food should be added to the tax base to add yield and stability, with relief provided through a drop in income tax or tax credits; “the system of local government finance is broken” – Maine should think about starting from scratch, with a much lower property tax and, perhaps, local taxing authority; “reliance on a narrow set of tax instruments typically translates into higher tax rates on existing tax bases, increasing the likelihood for distortions in economic behavior.” This last point is important considering some of the simplistic petition drives to further limit the state’s option to raise needed revenue, forcing it to rely even more heavily on the remaining tools at its disposal.

Lawmakers are not the only ones who need to become better informed about the state’s tax system – everybody has an opinion about taxes, after all. The Margaret Chase Smith Center is making its tax-policy report available to the public for free by calling 581-1646 or through its Web site at www.umaine.edu/mcsc/.The center is attempting to raise the level of debate about taxes just in time for an intense debate in Augusta. Its good work is much appreciated.