Tax Rankings, Unwrapped

Posted Dec. 18, 2008, at 7:43 p.m.

Maine got an early Christmas present this year when a prominent anti-tax group said it had been wrong to list the state’s tax burden among the highest in the country. Unfortunately, no one has taken the gift out of the box and put it to use.

The Tax Foundation had said for several years that Maine had the highest local and state tax burden in the country. In August it said this wasn’t true, and the group recalculated its rankings going back to 1977. The problem, it said, is that some states, particularly Maine, have a high percentage of out-of-state taxpayers. Massachusetts residents who own second homes in Maine pay property taxes in Maine, which was counted as a tax levy here, but their incomes were counted only in Massachusetts, not Maine, skewing the state’s tax burden — taxes levied, divided by income — to make it look higher than it was. The foundation is now trying to align tax payments with the states in which the taxpayers live.

The result is that Maine’s average state and local tax burden this year was 10 percent of income, ranking the state at 15th. Under the new calculations, the highest Maine has ever been ranked by the Tax Foundation was fifth in 1998, 1999, 2004 and 2005.

Two important points: At 10 percent, Maine’s tax burden is only slightly above the national average of 9.7 percent. Second, the trend in the state’s tax burden is clearly downward, as it should be. In 2005, it was 11 percent, 10.8 percent in 2006 and 10.3 percent last year. Further, Maine’s average state and local taxes, in actual dollars, have dropped from $2,787 in 2005 to $2,701 in 2008.

Changing perceptions, however, is hard. Because it was touted for years that Maine’s tax burden was among the highest in the country, this is what people believe. It doesn’t help, of course, that many anti-tax groups and lawmakers continue to spread this message even though it isn’t true.

Knowing Maine’s tax burden is lower than many thought doesn’t change the need to move ahead with efficiency and consolidation efforts and to keep looking for ways to further ease the tax burden. But it should change the tenor of debate in Augusta, especially as the state looks to close a nearly $840 million budget gap. Saying Maine had the country’s highest tax burden was an effective way to get people riled up to push for lower taxes. Given Maine’s real position, the discussion now is more sophisticated and should focus more on who pays, how much they pay and what those tax dollars are used for.

More important, it takes a negative off the table at a crucial time. Rather than decrying Maine’s tax ranking, pro-business and economic development groups should be touting the state’s about-average burden along with its work force, business development programs and other positive attributes.

The state, with increasingly limited financial resources, isn’t likely to do this, so it falls to others to share this gift.

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