Maine’s tax-reform law violates Constitution

Posted Sept. 28, 2009, at 7:43 p.m.

The Sept. 18 editorial “Tax Reform Distortions” was aptly titled, as it went quite far in distorting The Maine Heritage Policy Center’s opposition to the “Welcome Back Tax” created by the newly passed tax reform legislation, LD 1495. For starters, I agree with the sentiments expressed in the editorial’s final sentence: The current income tax rate is high and punitive to all Maine residents.

The tax burden in this state needs to be reduced and The Maine Heritage Policy Center has been saying so for years. So, to suggest that a research-based challenge to the legality of a new tax law is about denying a tax reduction to everyone in Maine is, to quote the editorial, “disingenuous at best.” Rather, the simple reason behind the constitutional challenge is that what is most important is having a state government that operates within the law of the land — the United States Constitution.

Simply put, the ends do not justify the means. Indeed, the Constitution creates limits to protect the few from oppression by the many. An illegal tax cannot be justified on the grounds that it burdens the few for the benefit of the many.

Make no mistake; this new law most certainly creates a tax increase for tens of thousands of nonresidents and new residents who earn income here in Maine. Under the new law, for example, a family of four with a household income of $40,000 will pay more than $2,000 in new taxes compared to the current law because they will not qualify for the new household tax credit, which replaces the current exemptions and deductions, itemized or standard. While a new or returning Maine family will avoid that tax increase after the first year, unless they leave, there are thousands of people who commute from out of state to work in Maine whose families will pay the tax increase every year they work and pay taxes in Maine. This is a tax increase.

The editorial dismissed The Maine Heritage Policy Center’s concerns by pointing out that there are other targeted tax credits on the books and concludes, therefore, that all targeted tax credits are constitutional. Alas, constitutional analysis is not so effortless an endeavor. Look at what happened in the town of Harrison. Back in the 1990s, two summer camps located there applied for a property tax exemption and were denied. While other summer camps received the exemption, the state law on the books at the time denied these camps the same tax exemption because the camps hosted campers that were predominantly nonresidents. Using the editor’s logic, this law would be constitutional. In reality, however, the camps challenged the law and the U.S. Supreme Court struck it down as unconstitutional.

That is just one local example of many, many attempts by states to create targeted taxes and targeted tax credits that were challenged and ruled to be unconstitutional. While some targeted taxes are constitutional, it does not follow that all targeted taxes are constitutional. Likewise, while some targeted taxes are unconstitutional, it does not follow that all targeted taxes are unconstitutional. The point being, from a constitutional perspective, there is a right way and a wrong way to create tax relief. Just because some do it the right way doesn’t mean they all do. Maine’s new tax reform legislation does it the wrong way.

From a policy perspective, there are aspects of the new tax reform legislation that move the state in the right direction. There are aspects that move the state in the wrong direction. However, when policy — be it good or bad — is implemented with legislation that does not conform to the requirements of the U.S. Constitution, then policy becomes a secondary issue. The rule of law trumps legislative policy decisions every time.

Arnold S. Clark is the director of the Center for Constitutional Law at The Maine Heritage Policy Center in Portland. He may be reached at aclark@MainePolicy.org.

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