Maine’s ‘Gordian knot’

He who frees the chariot shall ride it as he conquers Asia.” So was the challenge that led many to attempt to untie the Gordian Knot. It is a story and lesson I taught each of my children, when they were old enough to ask questions. The current tax proposal reveals that nobody ever taught the story to the governor.

On Nov. 30, Baldacci outlined two pieces of legislation. LD 1 is intended to increase the state share of education costs; LD 2 is a resolution to amend the constitution to allow two classes of property taxation. LD 2 addresses the constitutional objection raised in Palesky, and introduced language similar to Palesky. The latter vindicates my assertion, published in September, that the tax cap initiative made sense.

The proposals also include language restricting changes in taxable value to “the rate of change in purchasing power of United States currency.” Faced with a depreciating dollar and higher import costs, taxable values should fall in the face of inflation – though the intent should be to peg raises in value to inflation. It’s an interpretative problem a good lawyer would enjoy prosecuting.

The Maine State Chamber of Commerce wishes to cap property taxes to 6 percent of income, and link spending to income growth. I pointed out a key flaw in the 6 percent initiative, which the governor has since addressed and corrected by making any overage a deferral – at interest – to be collected when the property is sold, or the owner dies. All that did was create a state-sponsored reverse mortgage and pass the tax burden, with interest, to any heirs; alternatively, for those with capital resources which produce unrecognized income, it provides investment funding at interest rates favorable to long-term estate planning. In short, it’s a budgetary gimmick having no meaningful benefit to the average Maine resident, with the potential for a default bubble 20 years hence.

There is also a proposal to expand the Maine Residents Property Tax Refund Programs for 2005 – to cover single residents earning less than $50,000, for couples less than $75,000. State refunds would also be raised from a $1,000 maximum to $3,000. Effectively, the state will assume all taxes on the first $150,000 of valuation in homes valued above $300,000 – and cover 60-70 percent of Maine residents. The median property valuation in Maine is less than $100,000 with an average tax bill of less than $1,700. Will the state be paying 100 percent of some taxes?

The governor plans to increase educational funding by $250 million to assist local school districts. Educationally, and thus economically, this nation is falling behind those nations which have some form of centralized educational system. Purchases of uniform texts and materials are policy in a few states – adding personnel costs would be a cost-effective means of reducing local taxes. The state should abandon the deferral gimmicks and focus on constitutional changes to render direct incremental educational costs a state responsibility. Centralized personnel overhead, and student costs would reduce local property taxes by about half – school districts could then provide the physical facilities as a local responsibility.

There is a threat of another Palesky or similar initiative. The deadline for filing signatures for this year is Jan. 20 – the governor has said he wants the laws in place by then. The idea that only fragmented funds transfers will address the property tax issue is wrong. We need real sustained reduction. We also need them to be in a form that doesn’t penalize summer residents.

People come to Maine year after year; for most, it is because they, or a family member, maintain a summer residence here. If we increase the cost of holding those residences vacant, they will be sold. More important, while awaiting buyers, the owners will be taking their vacation money elsewhere – to wherever they are made to feel summer residents are welcome additions to the economy, as opposed to geese to be plucked.

Oh! The solution to the riddle of the Gordian Knot? Many know that Alexander slashed it with a sword, but few know why. The objective was not to untie the knot, it was to free the chariot so it could be ridden. To solve a problem properly, you must first understand the objective. For the governor and Legislature, the object is to pay the cost of educating our children, and affect a reduction in property taxes – it is not to create an ever more complicated bureaucratic Gordian knot.

W. Lawrence Lipton is a resident of Harrington, a former professor of business studies, and a multiple Who’s Who. He is also listed by the University of Manchester (England) as an authority on American real estate, and has recently begun writing a column for the Machias Valley News Observer.