The state’s automobile excise tax is one of the most reviled levies in Maine. That’s why a citizen’s initiative that lawmakers will consider this week is deceptively simple. Cut the tax in half, it proposes, and Maine taxpayers will save lots of money.
For those who believe that government should shrivel up and go away, less revenue simply furthers their goal. For those who believe that government, at all levels, does important work that no one else will do, the answer isn’t so simple.
On Thursday, the Legislature’s Taxation Committee will hold a public hearing on LD 974, the first of two tax-and-spending related bills that, if not passed by lawmakers, will appear on the November ballot. The other measure, which has yet to be scheduled for a hearing, would restrict government spending and require voter approval for tax increases.
LD 974 would roughly cut the automobile excise tax rate in half for the first six years that a car was owned. It also would eliminate sales and excise taxes on new hybrid vehicles and those that get more than 40 miles per gallon.
A perverse consequence of this bill, based on Mainers’ propensity to keep their cars for a long time, is that is makes the excise tax more regressive. According to a study done by the Maine Revenue Service last year, 68 percent of the vehicles registered in Maine are five years old or older. Passage of LD 974 would give a significant tax break to the small percentage of people who can afford new cars, but no break to the majority of vehicle owners.
At the same time, reducing the excise tax would leave a large gap in municipal budgets. Statewide, the change would cost municipalities $82 million a year, according to the Maine Municipal Association. In most communities, the lower excise tax would mean about a 10 percent decrease in reve-nues. In Bangor, that would mean about $1.8 million less per year and in Orono $600,000 less.
Proponents of the measure argue that families and businesses are making do with less money because of the recession so towns should, too. This logic fails when those who want to pay less can’t agree on what government should do less of.
Because the excise tax revenue is generally used to pay for municipal road and bridge maintenance and repair, cutting the tax would result in worse roads or an increase in property taxes, the only other source of revenue controlled by local government.
A tax break for new car buyers isn’t worth this cost.