OVERDUE TAX REFORM

At the center of a tax-reform package being picked apart by lobbyists in Augusta is an unmovable fact: Dropping Maine’s income tax rate from 8.5 percent to 6 percent, as the reform would do, is the most important improvement lawmakers can make to business attraction in Maine.

The reform would change Maine’s emphasis of taxing savings to taxing consumption – the sales tax shift – thereby encouraging investment without abandoning state services. The change is especially important to the state’s small businesses, organized as S corporations, which would save $96 million annually under the bill.

Speaking at a press conference Wednesday, Sen. Richard Nass, R-Acton, said the income-tax change would drop Maine from having the seventh highest rate in the country to 34th, “the single greatest statistic indicating business attraction.” The fact that a bipartisan group of lawmakers came to agreement on this boost to business development, despite wide differences on many other spending issues, suggests how important this move is.

Maine has one of the narrowest sales-tax bases around – hitting only 24 of 168 services taxed nationally and depending too heavily on car and building supply sales to fill state coffers. In good times, the money flows in at extraordinary rates, encouraging legislators to spend. In bad times, the money dries up rapidly, leaving programs unaffordable. This reform builds in stability and predictability, and moves about $140 million in taxes out of state by including goods and services more likely to be purchased by tourists – the kind of goods and services that they are taxed for at home.

The reform makes two other changes barely mentioned so far: By moving Maine out of its desperately outdated tax system, it opens up debate in Augusta for future tax reforms – including revisiting some of the individual changes in this reform – without reliving a major battle over comprehensive reform. Second, it leads the way to further tax relief because it creates success and trust across the aisle in Augusta.

No one who has read the bill can claim it is without pain or that it is perfect. But neither could they claim it isn’t badly needed.