Narrowing Tax Reform

Legislators hope to accomplish today what they have failed to do over the last 20 years: reform the state’s tax system while providing relief especially to property taxpayers. Their success will depend on their ability to think over the long-term and to understand that they really are debating details of only one plan.

The plan, in one form or another, immediately targets property tax relief, including the elimination of property tax on business equipment, and long-term lowers the overall tax burden in Maine. To accomplish this, lawmakers must target, through its circuit-breaker program, residential property tax relief to those who truly need it, a combination of expanding the circuit breaker with a modest increase in the general Homestead Exemption.

Tax relief in Maine will not come from raising the sales tax, as Senate Democrats propose, particularly if there is no ironclad demand that the amount of money raised be cut from taxes elsewhere. Maine has just dropped out of the nationwide ranking as the state with the highest tax burden; to go back in that direction, as a penny on sales would do, is not worth the bad publicity that would discourage new businesses, even though the Senate plan is strong in some areas – it pays for itself each year, it targets a lot of property tax relief and it, like other plans, caps spending.

The primary problem with Maine’s sales tax is not its height but its width – it would be better to broaden the base than raise the tax, though even that won’t win over the governor. He cannot, politically or practically, raise taxes and, as the Senate plan proposes, put aside for future school costs $24 million and simultaneously cut health care to the poor, as the proposed budget would do. The penny in the Senate plan is the problem.

Similarly, the governor’s plan, an unwieldy collection of good ideas that add up to less than an inspiring package, should be allowed to fade away. There was nothing wrong with it except that it was not understandable to the public and was not vigorously sold by the administration.

What will be left today, besides two inadequate referendums voters will have a chance to consider later this year, is the House Democratic plan, which is smaller reform, adds some school aid to lower property taxes and raises level of the circuit-breaker program. It is more relief than reform, but the plan, guided by Speaker Pat Colwell, is a reasonable response to the decades-old problem of high property taxes. That it is paid for by sin taxes – butts and booze, which do not now pay for the health problems they produce – should make it acceptable to the majority of the public.

Or at least temporarily acceptable. There is a splendid opportunity in this plan for minority Republicans in both houses. The Democrats are thoroughly disorganized – the House and Senate plans are at odds far too late in the session, their caucuses within houses aren’t in agreement and Gov. Baldacci’s means of restoring order is to promise a veto of the Senate plan. The GOP, which wants but won’t get a constitutional amendment to restrict spending, should instead demand the most important missing element of tax reform be included: lower taxes.

In exchange for their support of the House Democratic plan, they could demand tax sunsets. Not on the sin taxes necessarily but on other taxes that are too high in Maine. Why not, for instance, schedule a drop equal to the value of the sin taxes for taxpayers in the top state income bracket? (This is not a break for income elites – Maine’s middle class gets included in the top bracket.) Or what about increasing the state personal exemption, which is well behind the federal level?

Long term, with state revenue recovering and Maine government not quite so fiscally desperate, the lower taxes would strengthen the overall reform without bankrupting the state. It would complement the property-tax breaks and allow the Legislature this week to emerge with something substantial to present to the public.