Homestead on the Potomac: tax relief from above

Why has Maine been ungraciously slow to thank President George Bush for its long-sought property-tax relief, the one that might be called Homestead on the Potomac? If you haven’t noticed this good and essential deed, you have yet to complete your tax forms for 2003. For several income groups – those married, those with children, those in the lower brackets, the happily wealthy – the amount owed fell handsomely, returning money directly to Maine property owners, who now have the relief they have sought for so long. The president’s tax cut, unintentionally, has done what the Legislature has endlessly debated doing, returning money from one level of government to ease the tax pressure at another.

Certainly, there are complications. There is the national deficit, for one thing, which someone is going to have to pay off. There’s a small question of whether the federal tax cuts will be permanent, though they likely will. And there’s the fact that one way the tax cut was made possible was by cutting funds to states – $70 million of Maine’s ’05 budget shortfall is caused by this. But Maine has been yelling about tax relief and George Bush delivered: After the cuts of 2001 and ’03, 111 million individuals and families nationally will pay an average of $1,586 less to Washington in 2004, according to the U.S. Treasury. The average annual property tax bill here, by the way, is around $1,700. So, that takes care of that.

Or it almost does, because some of that windfall should go back to where it was previously intended, to Augusta. Nothing like all of it – you’ll still get more of a break than you would from any plan the Legislature has devised – and a tax increase need not be permanent. But state lawmakers have cut more than $1 billion in spending in the last 15 months and probably could have closed the budget gap entirely if it weren’t for the federal contribution to the problem, and would cut more, at this point, at Maine’s peril.

Maine needs some of that money so it does not have to eliminate therapeutic services to Medicaid clients, for instance, services such as physical therapy, dental care and speech therapy. It needs the money to draw Medi-caid dollars to keep nursing homes safe by providing adequate staffing, and to provide the poor with health insurance and fund housing and services for retarded citizens. To make his budget balance without broad new taxes, Gov. Baldacci has ordered tens of millions of dollars in cuts in all these areas, with the effect, providers say, of endangering the community programs the state has spent decades trying to develop. These programs are especially vulnerable because they received no budget bump during the good years of the 1990s and now have no cushion during the bad years.

The Baldacci administration is now famously opposed to tax increases, an understandable position given Maine’s overall tax burden. But it is also and equally in favor of thoroughly considered reform: Its tax-relief plan would take five years to accomplish; its merger of the Departments of Human Services and Behavioral and Developmental Services would take several years, as would Dirigo, its new health care coverage. If the administration approved of gambling, its lucky number would be 2007.

This sort of patience makes sense. Large changes in important programs – sometimes where people’s lives are at risk – should be undertaken, of course, carefully. The providers of services to the elderly, the mentally ill, the mentally retarded and the poor want similar consideration; many say they agree with the administration that the way services are organized is inefficient and, especially if page after page of unfunded state mandates were lifted, could be run as safely and well but a lot less expensively. But, just as the governor needs time to reorganize his departments, they need time to reorganize their agencies.

So here’s a suggestion: Add a quarter to the tax on cigarettes, raising $22 million, and increase the tax on alcohol to raise several million more. This is not the most honest way to collect that money – a broad-based tax would be fairer, but sin taxes are already being considered in Augusta while there is virtually no time left this session to build support for a fairer way to raise that money. Anyway, given the amount of money smokers and excessive drinkers cost the Medicaid system, the new tax would be an investment in a cause close to their hearts (and lungs or livers).

But in the same bill, lawmakers should raise the income tax brackets to achieve equal savings – to take effect one year after the sin taxes begin. Or if repairing the tax brackets doesn’t interest you, after one year add the new revenue to the state’s Homestead Exemption. Either way, the overall tax level would rise slightly for one year and then drop down again. During that time the agencies would know what was coming and could figure out how to meet the targets rather than endure the chaos of program cuts now, with the budgets already committed through the end of the fiscal year.

The governor frets about the shortfall in the next biennium, which is some $900 million. He wants departments, agencies and clients – anyone dependent on state revenue – to get used to the idea that the surpluses of a few years ago are gone forever. Those glorious federal cuts that gave Maine its property-tax relief mean that states won’t be so flush again for a long time. (You do feel better now that the relief has arrived, right? Great, just as long as you also know that the lack of that money in Medicaid accounts could make some lives miserable.) The governor has a point. But if the more austere budgets really are a long-term problem, why try to adjust to them over a matter of weeks? Maine would do better to plan for them long-term by buying a little time now.

The price of time is a small portion of the Homestead on the Potomac tax-relief package.

Todd Benoit is the editorial page editor of the Bangor Daily News.