Maine’s uncertain tax policy

This week marks the 231st anniversary of the Boston Tea Party. In his commentary on Maine tax policy in “Changing Maine – 1960 to 2010,” edited by Professor Richard Barringer of the Muskie School of Public Service, state Sen. Peter Mills says “we need to remind ourselves that poor tax policy was the reason England lost control over its American colonies.”

Yes, on Dec. 16, 1773, American patriots dressed as Mohawk Indians boarded the vessels of the East Indian Co. docked in the Boston harbor and dumped all the tea that was on the three ships into the ocean. It was Samuel Adams who led the Sons of Liberty on the assault against King George III and the decision of the British parliament to allow the East Indian Co. to export tea to the American colonies for the purpose of selling it without imposing upon the company the usual duties and tariffs. In the words of Adams, “If our trade be taxed, why not our lands, or produce, in short, everything we possess? They tax us without having legal representation.”

As a Maine taxpayer who has often been frustrated and concerned about Maine’s reputation as a high tax, low income state, I recommend that you read Mr. Mill’s insights on Maine government funding dilemmas based on his decade of public service. Although I disagree with his contention that implementing the reforms that he proposes to the school funding formula, circuit breaker homestead relief, and municipal revenue sharing will result in “no legitimate reason to abandon or limit property tax,” Mr. Mills provides very compelling advice that our elected representatives would do well to heed.

In particular, his suggestions for reassessing the current level of government reserves and curbing the rate of state borrowing are two areas for constructive focus. Mr. Mills points out that Wyoming, a state with less than half the population of Maine, maintains operating reserves of $3 billion to address the ups and downs of our volatile economic cycles. Rather than pinning our hopes on a broader sales tax base or higher taxes, a more prudent solution is to apply fiscal discipline to increase the rainy day fund to sufficient levels to weather our “bungee cord” economic cycles.

Is this possible? Mr. Mills reminds us that when the political will exists, the way is found. For example, in the mid-’90s our state bureaucrats were able to increase unemployment reserves from $80 million to $400 million and to increase annual state pension fund contributions to $244 million, thereby bringing total pension reserves to $5 billion. With such accomplishments, are we proud to admit that the best we could do at the peak of the 1999 dotcom boom was to increase General Fund reserves to $140 million, a meager 6 percent of one year’s revenue?

What happens when people lose faith in their government? Mr. Mills draws a correlation between state budget woes caused by the 1991 recession and the political changes that followed, which included the introduction of term limits and the election of an independent governor. While I favor term limits as a means of keeping our Legislature vibrant, Mr. Mills does challenge the Legislature to be accountable to the people. He encourages our legislatures to ask, for example, that if reform and consolidation at the municipal level is so crucial to our future, then why have there been no new school districts created since 1969.

During 2004 the people of Maine expressed their views twice on the current state of financial affairs in Maine. In June voters sent a message to their elected representatives on the issue of more state support for education.

In November they rejected a tax cap proposal that opponents were able to paint as too harsh. At the same time, the alternative proposal drafted by the Maine Chamber of Commerce acknowledges that there is a need for some sort of tax cap.

I have heard that Carol Palesky is preparing to launch a new petition that is more palatable to voters. Gov. Baldacci has weighed in on this important issue in preparation for the 2006 elections. Samual Adams and his Sons of Liberty would be proud to know that the voice of the people is alive and well more than two centuries after their little tea party.

Steve Kenney is a former auditor in the University of Maine System who is now working as a consultant in international development. He lives in Unity when not on assignment overseas.