A Shot at Tax Reform

The public has annually and correctly blamed the Legislature for failing to agree on anything like comprehensive tax reform, and newspapers for the last couple of weeks were suggesting the Taxation Committee would have nothing to offer when the session ends. This week, on a 7-6 nearly party-line vote, the committee approved a major package that affects property, sales and income taxes in important ways. Some of its details are objectionable, but its overall message is important: Lawmakers can put together a major tax-reform plan that strengthens the current system.

Committee chairmen, Sen. Joe Perry, D-Bangor, and Rep. Richard Woodbury, u-Yarmouth, deserve credit for performing what so many lawmakers before had failed to perform. Their plan brings Maine’s income taxes more into line with federal taxes, increasing the standard deduction and personal exemption, while reducing the top rate of 8.5 percent to 7.9 percent. It increases the circuit breaker program to reduce property taxes for those who qualify and fully funds the Homestead Exemption to cut property taxes for everyone.

To pay for these cuts, it increases the meals and lodging tax, the tax on car rentals, beer, wine and soda and real estate transfers – one of the committee’s goals, a good one, was to get vacationers to pay as much of Maine’s tax as possible. It expands the sales tax to dozens of goods and services that are not now taxed and even revives the snack tax. The six Demo-crats on the committee and Rep. Woodbury approved the measure; Republicans unanimously rejected it.

The proposal raises more through taxation then it cuts: $66 million in the first year; $81 million in the second. If, as several lawmakers say, this new state revenue merely offsets the loss of revenue under LD 1, two problems for them quickly arise. First, LD 1 was supposed to be tax relief, so it should not be offset and, second, the Legislature is ready to pass a $1 increase in the cigarette tax that would raise $70 million a year.

The added revenue in the tax-reform package is a problem but not a terrible one because it gives the reform’s supporters room to maneuver. For instance, they will certainly hear protests from private nonprofit schools that would be taxed as well as (terrible!) “publications sold at short intervals.” And then there are funeral services – taxing death is symbolically difficult. But by starting with more revenues than costs they can afford to slice off some of the items that cause a lot of protest without generating a lot of revenue.

Christopher St. John of the Maine Center for Economic Policy had the most succinct reason for supporting the reform. “It puts people to the test” on reform, he says. “Do we want it or not?”

By “it,” he means a more modern, more stable system that recognizes a changed economy and the value of exporting taxes whenever possible. The reform package is imperfect; it needs to be cut to more closely align reductions and new revenues. But it is real reform passed out of committee, and that is an accomplishment in itself.

Lawmakers and the public have very little time to consider this reform. Legislators should ensure that this important advance is not lost as the session hurries to its conclusion next week. They have something that, properly modified, would give them a significant achievement in what has been a long, difficult session.