February 21, 2013

Our View: Legislature should back local option, tax reform

Maine's permanent budget crisis is proof that the current system is no longer working.

Maine has resisted tax reform, clinging to a system that taxes wages, some sales and residential property too much, while letting revenue from part-time residents and tourists slip away.

This already lopsided system could get even worse if a budget that resembles Gov. LePage's two-year plan is adopted, and the state keeps all the money collected in sales tax to protect an income tax cut passed in 2011.

Combined with cuts to other property tax relief programs like the homestead exemption, the governor's budget would end sharing sales tax revenue sharing and shift about $400 million in costs onto cities and towns, which would have either to cut services, raise taxes or some combination of the two to balance their budgets.

LePage's proposal is understandably unpopular, but so would a budget that was balanced with further cuts to education and social services. Even if the LePage plan does not succeed, the governor has successfully put revenue on the table and the response should be an attempt to re-adjust Maine's tax system to set the balance more fairly between income, sales and property taxes.

A reformed system should include a tool that many other states use to help service centers pay their bills without bankrupting their residents: the local option sales tax. This would let communities raise revenue by adding a tax over and above the state's sales tax for transactions made locally. Several bills to do that are before lawmakers this session. Although such efforts have been rejected in the past, Maine's five-year budget crisis is proof that the current system isn't working.

Maine law makes an effort to treat all municipalities the same. That's why all sales tax revenue is sent to Augusta, no matter where the sales took place.

But all municipalities are not the same. Some have valuable property to tax, other do not. Those differences are evened out with the school funding formula, where districts receive school aid from the state in proportion to their ability to raise revenue from property taxes.

But there are other ways that communities are different. Cities have a disproportionate responsibility to provide social services, often to people who have left their hometown because they needed help.

Some communities see their populations double or triple at certain times of day or of the year. These temporary guests need police, fire and ambulance protection, safe roads to drive on and places to park but they don't pay any local taxes.

Maine needs a fair tax system, and a local option sales tax should be part of it.

 

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