Homestead Plus succeeds where Palesky tax cap fails

Tax reform is about balancing taxes overall for hard-working Mainers, but it is also much more than that. To truly be reform, any policy package must address three things.

First, Maine is trying to fund a 21st-century government with an antiquated tax system. Neither the property tax (having nothing to do with a person’s ability to pay) nor the sales tax (applying to goods, exempting services) reflects modern economic reality. Just as Alaska (funding much of state government from oil royalties), Florida (a variety of tourist and sales taxes) and California (income taxes on the wealth of Hollywood, venture capitalists and Silicon Valley entrepreneurs) capitalize on their economic strengths in order to hold down taxes for their residents, so too must Maine. We call ourselves Vacationland, but do not reflect that advantage in our tax base.

Second, tax reform must promote greater fairness. The value of democracy is that it provides for the collective expression of the will of the people and, through the pooling of resources, the funds necessary to provide for that common will. Implicit in this notion of democracy is progressive taxation – that each individual’s contribution to the common good should be based on their ability to pay. Maine used to have a relatively progressive tax system, but it has become badly skewed because of an over-reliance on the property tax.

Lastly, any tax system must promote balance and stability. Economists of all stripes agree that a state should raise revenue in roughly equal proportions from income, sales and property taxes. Balance between these three taxes in and of itself breeds stability, smoothing out the highs and lows of revenue collection.

Unfortunately, lack of balance, stability and fairness is exactly what we have today in Maine. Our sales tax generates only 21 percent of total revenues, our income tax 28 percent, and our property tax 44 percent. Having grown up in the mill town of Millinocket it pains me to say this, but the fact is we have moved from a manufacturing-based economy toward a service and tourism economy. Because of this our sales tax which, in theory, should be a very stable, broad- based tax is, in fact, very volatile and applies to an ever-shrinking base.

Common sense, then, would require we generate more revenue from the sales tax, which draws a large amount of revenue from tourism (and could draw a great deal more if expanded carefully), and use that money to lower the property tax on those Maine residents for whom it has so dramatically outpaced their ability to pay. The state has not yet met that task and now we are faced with an irresponsible property tax cap that manages to strangle the majority of towns, provide no reform whatsoever for many Mainers with the highest tax bills, cost the state as a whole a fortune, and still, amazingly enough, fails to address any of the elements of the original problem – it simply makes it worse and creates many more besides.

No amount of “fat trimming” and “belt tightening” will make this tax cap feasible. The proponents of Question 1 claim that opponents are just using scare tactics, but the reality of what they have proposed is scary. Question 1 will force dramatic cuts in emergency services, education, economic development and everything else that our towns do to create livable communities for us and our families. It will result in more than 4,000 jobs lost – and that’s not including teachers. That’s more than has occurred in the paper industry in the past two years.

If there’s one thing Maine needs even more than tax reform, it’s good- paying jobs with benefits, and sustainable economic development. But because of decimated emergency services, business and homeowners insurance will go up since policy rates are based on the quality of these services. Also, a report in the Wall Street Journal in August suggests bond investments not be made in Maine pending the outcome of the tax cap vote. With bond ratings dropping, insurance rates increasing, economic development slashed and education gutted, it could be the death knell for small business in Maine which provides 90 percent of our jobs.

So where does this leave Mainers who are clamoring for real reform? The answer is Homestead Plus (www.homesteadplus.org). By making the property tax based on ability to pay, this proposal would lower property taxes for Maine residents, while preserving essentials like health care, education, municipal services and economic development efforts throughout Maine. Homestead Plus accomplishes an income-based shifting of taxation off the property tax, which hits too many Mainers too hard, by broadening the sales tax base to many of the things that represent tourist and discretionary spending, and could be done for a fraction of what Question 1 would cost.

Certainly the wrong way to address the problem is to pass a law that threatens the well-being of our towns, gives huge tax breaks to vacation homeowners and corporations, and yet does little or nothing for many Mainers with the highest property tax bills in the state.

For Maine’s sake, please vote NO on Question 1 and join us in our effort to adopt Homestead Plus. Homestead Plus would simultaneously preserve what Maine does right while lowering the overall taxes paid by residents. That is real, responsible reform.

Rob Brown lives in Bar Harbor and is a tax policy researcher and organizer with the Maine Citizen Leadership Fund.