May 5, 2013

Dan Demeritt: The sweetest ingredient of Woodbury's tax plan: Hope

Political and economic stars appear to align with the state senator's bold proposal for tax reform.

Imagine waking up tomorrow and Maine's system of taxation has been wiped from the books. Envision a day when the rules, regulations and ties to the way things have always been done have been eliminated. Try to put yourself in that place and wonder about the opportunities and possibilities.

Dick Woodbury, the very cordial and thoughtful independent state senator from Yarmouth, has been considering this eventuality for years. The result is a bold plan for modernizing and simplifying Maine's tax code that has drawn the support of a bipartisan group of legislators in Augusta that includes Democrat Senate Majority Leader Seth Goodall and Assistant Senate Republican Leader Roger Katz.

I sat down with Woodbury, Goodall and Katz last week to talk tax policy and politics. I left this tri-partisan conversation believing that their pitch has appeal and might just be bold enough in challenging times to be politically viable.

First and foremost, Maine has a spending problem that, if addressed, would make our challenges on the revenue side of the ledger easier to overcome. Unfortunately our appetite for services and the inefficient redundancies in our system of state, county and local government will not be solved this legislative session or even across the entire first term of the LePage administration.

I had my hopes, but that level of change may take another four years.

Absent my preferred spending solution, the Woodbury plan has plenty of mass appeal. And by that I mean it collects more revenue from our friends from Massachusetts and elsewhere. It also puts more of an emphasis on the taxation of consumption and reduces the burdens associated with our outdated property tax.

In a perfect world, taxes would be equal parts assessment of ability to pay and consumption of services. Families with four kids in the schools would pay more than those with none. The well-to-do would have a higher tax bill than those of modest means.

In some cases we pull that off. The gas tax you pay is an accurate reflection of how much you utilize our system of roads and bridges. But in accomplishing this end, the gas tax can be a tremendous burden on low-income Mainers who commute to work.

The income tax you owe is tied to how much money you make but has no direct connection to your use of government services.

In agrarian times, the value and vastness of your property accurately reflected both services consumed and capacity to pay taxes. Land was the basis for most economic activity and prosperity literally grew from the ground.

Today very few taxpayers have incomes that are tied directly to the parcels next to their names on the tax rolls. Property certainly remains an asset, but the wealth that homeowners accumulate through amortization and appreciation is illiquid and does not directly correspond to income or the consumption of government services.

Assessments on consumption, like Maine's sales and use tax, are a far more accurate reflection on ability to pay taxes than property ownership. If you are spending money in the economy your capacity to sustain taxation exceeds that of people who are not. Consumption taxes also occur without creating disincentives for income generation or wealth accumulation, critical parts of an expanding economy.

Consumption taxes also capture the economic activity and service consumption of visitors to our state. The costs of maintaining the resources and way of life that make Maine a destination should be borne by tourists, snowbirds and every other visitor to our state. A higher and broader sales tax captures revenue proportional to the time those from away visit Maine.

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