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May 5, 2013

Charles Lawton: Sacred tax cows should be slaughtered for Maine's sake

God bless Dick Woodbury.

Finally, an independent has moved beyond the pragmatic narcissism so common to the species and taken a courageous stance of real leadership. The plan he has brokered with his so-called "Gang of 11" represents the best chance Maine has had in a generation to address both its fiscal woes and its economic stagnation: Broaden the base, lower the rates and target the exceptions to those we can clearly identify as needy.

Those are fighting words to take to the barricades. The only question now is whether the good senator and his "gang" can stand up to the legions of Lilliputians certain to rise up to defend the free rides they're now getting on the backs of auto dealers and building supply stores, and the obsolete and ill-considered definitions of fairness that so dominate the conventional "wisdom" surrounding tax reform.

The greatest of these shibboleths, of course, is the one that says, "We can't touch the sales tax because it's regressive -- it hits the poor disproportionately."

Let's look at that one for a minute. The Maine sales tax today does not apply to "grocery staples," meaning, in the no-nonsense language of the report, "food products ordinarily consumed for human nourishment." Why exempt that stuff? Because, in the equally straightforward explanation, they are a "necessity of life."

OK, but then why not an exemption for clothes, or cars, or music? After all, man does not live on bread alone. And what about filet mignon and caviar? Are they "necessities" of life? Guess that depends on your taste.

No, we all know that the reason we exempt "grocery staples" from the sales tax is because "the poor" spend a higher proportion of their incomes on food, so it is "regressive" to tax food.

And that's true.

According to the latest U.S. Department of Labor consumer expenditure survey, the lowest 20 percent of households on the income scale devote 11.1 percent of their total spending to food consumed at home while the highest 20 percent of households devote only 6.1 percent to food consumed at home.

And do these lowest 20 percent of households deserve some special treatment from the tax man? Absolutely. On average, they are older, more commonly headed by a female, less educated, far more likely to rent than to own their housing and far less likely to own a car. So how then can you be so callous as to make these people pay a tax on the food they buy?

Because it's a grossly inefficient way to help them. Talk about casting your bread on the water; this exemption, no pun intended, takes the cake. According to the same report from the Maine Revenue Service, the cost to the state General Fund in fiscal 2013 for this "necessity of life" exemption is $76,294,000.

Using the Consumer Expenditure Survey to distribute this tax break over the state's total food spending shows that approximately $9.5 million goes to "the poor." Even if we expand the definition of "fair" to the bottom 40 percent of households, the benefit expands only by $11.7 million.

Indeed, the benefit of this "fairness" exemption to the top 20 percent of households amounts to more than $23 million. Then remember that much of the food bought in Maine for "consumption at home" is purchased by summer visitors, thus further reducing the share of this tax break actually benefiting the "truly needy."

In short, we're "spending" $76 million of General Fund dollars to provide a "fairness" break of maybe $9 million to our low-income households. Try bringing that idea to the Legislature next week and finding cosponsors.

If we're going to cast our bread on the water, we can surely find better ways to do it than this obsolete, even irresponsible, manner.

God bless Sen. Woodbury for helping us improve both our hearts and our hands in this effort.

Charles Lawton is chief economist for Planning Decisions Inc. He can be reached at:

clawton@planningdecisions.com





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