BALDACCI’S TAX REFORM

Having scuttled the tax reform plan of his party’s legislative branch this spring, Gov. John Baldacci pledged to work on an improved version, perhaps to be considered during a special session in the fall. His office is now working on a plan. But with Democrats still angry with the governor and Republicans doubtful about his intentions on tax reductions, any plan produced by the administration will need a long public campaign to win acceptance. There’s no sign of that yet.

Tax reform has been a priority among the public for years, but politicians have been unable to do anything about it for several reasons. First, reform involves cutting some taxes while increasing others, and no one likes the second half of that equation. Second, much of the burden is in property taxes, which are collected locally, and municipalities resent state interference. Third, the only major tax that is currently too narrow is the sales tax, but raising substantial revenues from it depends on adding taxes to dozens of individual items, which each have a constituency. Fourth, tax reform will go down only with a large dose of tax relief – actually cutting the overall burden – and Maine hasn’t had a lot of excess revenues to do that.

Gov. Baldacci made it plain last spring that he wouldn’t support broadening the sales tax to offset other tax cuts. It is politically impossible to raise income tax rates; towns work relentlessly to lower property rates; and he could not raise enough in the many minor taxes to make a difference in the overall burden. Without a willingness to re-examine the sales tax, major reform is essentially dead.

Tax relief, however, isn’t, and the governor might make a difference in this area but will also face challenges. For instance, the Legislature’s work would have cut income tax rates for most Mainers by 25 percent, a huge boost for small businesses. Matching that will be difficult, but the governor could hardly help kill this proposal, come back with something weaker and expect political support. His package should include an income tax cut of at least that scale.

Cutting property taxes, as some Mainers have been demanding for years, is even more difficult. Augusta has tried to provide property tax relief through added state school funding, but the results have yet to make a big impact on local tax bills. For a more immediate change, the governor would have to propose new spending restrictions on municipalities, a politically unpopular choice.

Gov. Baldacci said recently he would call legislators in for a special session in October if there is “broad and bipartisan” support for his tax package. There may well not be, but the governor’s obligation is to complete a tax package soon, take it on the road statewide to build support, then call in lawmakers and make his case that this plan is superior to the one he helped defeat last spring.

Lowering the overall tax burden would be welcome, but if Maine is to get away from its archaic reliance on property as a measure of wealth, attract more businesses and export more of its tax burden out of state, the governor needs to present a reform package as well. October is a great time for him to put it to a vote.