Take on the challenge of high taxes, falling incomes

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This morning I attended a roundtable for tax experts in Bishkek, Kyrgyzstan. The meeting was chaired by the vice prime minister. The agenda for the meeting was ambitious as the country looks to revamp all aspects of its current tax code in order to…
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This morning I attended a roundtable for tax experts in Bishkek, Kyrgyzstan. The meeting was chaired by the vice prime minister.

The agenda for the meeting was ambitious as the country looks to revamp all aspects of its current tax code in order to attract more foreign direct investment to this remote mountain country that struggles to compete with its oil-rich neighbor to the north and China to the east.

The vice prime minister communicated very clearly that he wants an open review of all aspects of the tax code and to install appropriate administrative procedures that promote transparency. This reminded me of my own attempts to create awareness of escalating property taxes in Maine and our poor reputation as a high-tax state and unfriendly business climate.

Getting people excited about taxes and motivating them to get involved is easier said than done. If you are a creature of habit like me it is easy to fall into the syndrome of “living with the inevitable.” Those of you who have young children can relate to this phenomenon. We have two – our son is 10 and our daughter is 8. Like most parents, we do our best to teach our children to treat each other with respect.

A normal day presents more than a few opportunities to remind them just how they are to carry out this noble character task – “What did I just tell you?” … “No, it is not all right to do that!” … “Did you hear me?” … “Look at me when I am speaking to you!” … “Are you listening to me?” … I think you get the picture. You probably have a few creative phrases of your own.

Every now and then, however, your parental defenses are caught off guard. It is as if you have stepped into a different time zone. While it may only last a moment, it seems like eternity. There is no fighting. Their conversation is calm. They are actually playing together peacefully. They are treating each other with respect. You are at a loss for words. You don’t want to interrupt.

So, what does this have to do with Maine Tax Freedom Day? Every April I look forward to reading the annual Tax Freedom Day report published by the Tax Foundation. As stated in its report, Tax Freedom Day is the day when Americans will finally have earned enough money to pay off their total tax bill for the year. Every dollar that’s officially called income by the government is counted, and every payment to the government that is officially called a tax is counted. Taxes at all levels of government are included, whether levied by Uncle Sam or state and local governments.

I usually do not bother to read the report much before April 15 because tax freedom never falls before the day that our governments expect us to file our tax returns. Surprise! The national 2004 Tax Freedom Day calculation fell before April 15 this year, it arrived on April 11.

This year’s Tax Freedom Day came an amazing 21 days earlier than in 2000. Not since 1967 has the nation’s total tax burden dropped to this level.

So, what does this mean for Maine? Not only does the Tax Foundation compute the national Tax Freedom Day, it also calculates a Tax Freedom Day for each of the 50 states, and provides comparisons with other countries as well. The 2004 Maine Tax Freedom Day fell on April 15.

On a positive note, it fell two days earlier than it did last year. So, Maine taxpayers are enjoying some of the benefits of tax relief being experienced by the rest of the nation. Also, Maine taxpayers should be relieved to know that the Maine Tax Freedom Day falls 58 days earlier than Great Britain’s (June 11), and well over two months earlier than our northern neighbor (Canada’s Tax Freedom Day in 2003 fell on June 27).

Getting back to my earlier comments on “living with the inevitable.” While it is good to see the Maine Tax Freedom Day running parallel, at least, with our tax-filing deadline, scratching below the surface at the reasons for the drop in tax burden reveals some familiar concerns of the past. According to the Tax Foundation, two factors are combining to make the average American tax burden lighter in 2004: federal tax reductions and a post-recession economy that is not producing tax revenue at a rate commensurate with its growth rate. After all, it only makes sense that taxpayers would pay lower taxes when they earn less money because of a recession.

Is this good? Wouldn’t you rather earn more money and, as a result, pay more taxes? Creating good jobs that pay good salaries continues to be a concern for Maine businesses and government leaders.

And how do Maine state and local taxes compare with other states? While it is true that the 2004 Maine Tax Freedom Day fell two days earlier this year, there are still 44 states that have Tax Freedom Days that fall earlier than ours. So, why is Maine in the bottom third with respect to income per capita but still on the top ten list in total tax burden? And what about our ranking with respect to state and local taxes? According to the Tax Foundation, for the eighth straight year Maine has made it to national State Tax Burden finals (top two states) by leading the nation in state and local tax burden as a percentage of income per capita.

Managing government budgets is not easy. There are many variables that have a direct impact on government funding. The vice prime minister here in Kyrgyzstan is taking on the challenge. Parents throughout Maine take on the challenge of building character in their children and teaching them discipline. Gov. Baldacci and his cabinet would do well to adopt a similar approach to engage the citizens of Maine in addressing high taxes and declining incomes.

Steve Kenney is an auditor by training who spent a significant part of the 1980s working in the central administrative offices of the University of Maine. He can be contacted at MaineTeaParty.com


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