Another Cut at Taxes

Gov. John Baldacci intends to have a tax-reduction plan ready by early December, when lawmakers return to Augusta to be sworn in. He is right to try to capitalize on the scare from the 1 percent property-tax vote earlier this month. He would be even more right if he would include a couple of goals to make his reform successful.

For instance, Maine ranks second highest on state and local tax burdens – taxes as a percentage of income – at 12.3 percent. A goal of dropping to third by the end of 2005 (or fourth, since Ohio and Hawaii currently are tied at 11.3 percent behind Maine) is a reasonable target and one that gives the state a measurable incentive. State and local governments would have to cut spending by some $400 million to reach that point. They couldn’t do that in a single year, but over a couple, softened by rising incomes, it may be possible. By the way, to count merely on rising incomes, with taxes held constant, would require a pay increase of 8.5 percent per capita.

Getting to 11.3 percent would be difficult, but eight states are bunched in the next percentage point below that – between 10.3 and 11.3 percent, so incremental improvement after that would move Maine well out of the worst category.

The governor said his tax plan must have bipartisan support, reduce taxes for all Mainers, improve the business climate and respect local decision-making. All good standards. For it to be bipartisan, he should invite legislative Republicans (and Democrats, who would hate to be left out) to participate in the reform-making process. When the governor presents the plan to lawmakers, his goal should be to have leaders of both parties by his side saying they support it.

While reducing the burden for all Mainers, especially, he says, “those who need it most,” the governor should have a plan with a clear vision, not just a collection of worthy ideas. He made this mistake last legislative session, when his tax-cut plan contained numerous needed changes but no theme. It was, predictably, ignored.

The opportunity this month is to choose among the several similar ideas from last session about expanding the Homestead deduction or the Circuit Breaker program to help those with high property taxes. Last session, he included in his budget a provision to index the tax brackets to inflation – a long-needed repair.

This time, his focus is on keeping more of the middle class out of the top income tax bracket. He will also count on local governments passing along savings from increased state school funding, which they pledged during the election they would do. Whatever combination of cuts he decides upon, the package should have a clear theme and specific savings.