May 5, 2013

Our View: 'Gang of 11' tax plan shows how unity can pay big dividends

The nonpartisan proposal could stabilize our state's economy and spread out the tax burden.

It's not every day that five Democrats, five Republicans and one independent lawmaker announce that they have reached agreement on a major tax reform plan that addresses all of the state's most difficult fiscal issues.

click image to enlarge

R.J. Harper, right, an IRS-certified volunteer tax preparer, helps last-minute filer Ana Dana at Portland’s Forest Avenue post office on April 17, 2012. A proposal to reform Maine’s tax system is a long shot, given its timing, but it demands serious consideration from legislators and Gov. LePage.

2012 File Photo/John Patriquin

With only about a month left before the Legislature's statutory adjournment date, their ability to pass something this sweeping and complex is a long shot, especially considering the history of tax reform in this state.

But because of the credibility of the so-called "Gang of 11," particularly the bill's lead sponsor, independent Sen. Dick Woodbury of Yarmouth, this long shot demands serious consideration.

THE CENTRAL PRINCIPLES

Details are still emerging on the nonpartisan plan, but here are the key elements:

The income tax rate would be cut in half.

The inheritance tax would be eliminated.

Corporate income taxes would be slashed.

Resident property owners would get an exemption on the first $50,000 of the value of their home.

To keep the budget balanced, the sales tax would be increased from 5 percent to 6 percent, and almost all exemptions would be erased.

Meals and lodging taxes would go from 7 percent to 8 percent.

Taxes on tobacco and alcohol would be raised.

Refundable income tax credits would be used to help middle-class and low-income Mainers offset increases in consumption taxes.

We have some questions about this approach and will be following its progress very closely over the next few weeks.

Will this new system be fair enough, or would a huge tax cut for the rich be paid for by increased consumption taxes for everyone else?

Will enough revenue be collected to pay for the services Maine people rely on, especially education, health care and anti-poverty programs?

And will it receive the bipartisan support it would need to avoid the fate of the Democratic tax reform package passed in 2009, but overturned by the voters a year later? Early comments from key legislative Republicans indicate they may not stand behind it.

BROAD REFORM OF UNWORKABLE SYSTEM

But even with those questions, there's a lot to like here.

It reforms all the state's taxes, not just the income and sales taxes collected by the state. Cutting income tax rates doesn't offer much to benefit middle- and lower-income Mainers, but cutting escalating property taxes does.

And it exports more of the burden of funding state and local government to people who don't live here but benefit from our natural resources, roads and bridges and quality of life. Residents and nonresidents alike pay sales and property taxes, but only residents would get relief in the form of tax credits.

It also promises to bring predictability to state revenue, creating a more rational environment for discussions about government's size and scope.

Maine has been in a budget crisis for so long, it seems like business as usual. State revenue was failing to meet projections only a few months after the budget passed in 2007, and that was before the Great Recession hit.

Since then, sliding revenue has forced constant updates and cutbacks to services for children, senior citizens, veterans and disabled Mainers that few would have thought made sense in more normal times.

Nobody thinks the current fiscal system works. There are no defenders of the status quo.

The problems are well known: State tax revenue is too volatile. There are surpluses when times are good and shortfalls when the economy slows down.

We are overly reliant on the property tax, which does not take into account an owner's ability to pay. There are too many exemptions to the sales tax, meaning that the state's collections rise and fall on the fortunes of just a few products, especially new cars and building supplies.

And with its 7.95 percent top personal income tax bracket, Maine ranks eighth in the nation for highest tax rate, which many argue discourages economic growth.

LEPAGE PLAN SPURS SEARCH FOR OPTIONS

This year, Gov. LePage has proposed a budget that not even he could love. It pays for a cut in the income and estate taxes approved by the last Legislature with cuts to municipal revenue sharing, General Assistance and two property tax relief programs, and it fails to invest more in schools.

Altogether, those changes would create budget crises in almost every city, town and school district in the state, resulting in disastrous cuts to education and public safety or property tax hikes. In most cases, it probably means both.

The only good thing you could say about Gov. LePage's proposed budget is that it creates an opportunity to think about major reform. His budget is crying out for a creative alternative.

The best thing about the Gang of 11 effort is that it shows that politicians can put aside angling for political advantage and tackle big issues that affect a lot of people. This is the kind of cooperation that appears to be impossible in Washington, and we should encourage it when we see it in Maine.

The bill's sponsors say they have consulted Gov. LePage and that he has promised to keep an open mind on the issue of tax reform. We agree with the governor -- and it's not every day we can say that.

Everyone should keep an open mind and consider the broad benefits that a plan like this could deliver before picking apart the details. Budget crises should not be business as usual.

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