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Governors cut taxes, medical aid to the poor

Posted April 13, 2011, at 5:50 p.m.
Last modified April 13, 2011, at 9:45 p.m.

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AUGUSTA, Maine — In their drive to cut medical assistance to the poor while pushing tax breaks benefiting the affluent, congressional Republicans are following the lead of a group of governors who have championed this approach to balance state budgets.

The strategy — reprising the supply-side economics of the Ronald Reagan era — has caught on with conservatives who say that lowering taxes for corporations and wealthy taxpayers will boost state economies.

But the moves are sparking a debate in capitols from Arizona to Wisconsin to Maine over who is being asked to sacrifice and whether the strategy will produce more jobs.

The issue also is emerging as an early test for tea party-backed governors and legislators who swept to power on pledges to remake government by cutting taxes and slashing government programs.

In Washington, House Budget Committee Chairman Paul D. Ryan, R-Wis., took up that standard last week with a plan to cut $5.8 trillion in federal spending, in large measure by scaling back Medicaid, Medicare and other health programs while also slashing the top tax rate for wealthy households and corporations.

In Maine, where November victories gave Republicans control of both the governor’s office and the Legislature for the first time since 1967, a debate over that approach is under way.

Gov. Paul LePage, a pugnacious newcomer to state politics who spent part of his childhood homeless, took the reins of a relatively poor state with serious budget pressures and one of the nation’s most generous health care safety nets.

Maine provides subsidized health coverage to more than a quarter of its residents. Today about 90 percent of residents have health insurance, compared with 83 percent nationally.

Providing that support hasn’t been cheap. Maine also has some of the highest taxes in the country. Families with incomes as low as $39,550 a year are subject to an 8.5 percent state income tax.

That reflects the state’s values, said Christopher St. John, executive director of the left-leaning Maine Center for Economic Policy. “Maine has a high-cost system because the state made a decision to expand its public-sector coverage. … It was something that Maine residents decided was a priority.”

But with the state struggling from the lingering effects of the recession and the decline of historic industries such as timber, fishing and shipbuilding, taxes have become an increasingly popular target.

“It is like a red flag for anyone looking to locate here,” said Christopher Hall, vice president of the Portland Regional Chamber, one of the state’s leading business groups. Hall is among many Maine residents who have concluded that without more jobs, the state has to make changes.

“We built an edifice we can’t support,” he said.

The new governor’s budget proposal would begin cutting back taxes, lowering the top income tax from 8.5 percent to 7.95 percent.

Among other tax breaks, the governor wants to exempt estates worth less than $2 million from Maine’s inheritance tax. Currently, only estates under $1 million are exempt.

Unveiling his budget, LePage called it a “jobs bill” that “makes tough choices and puts people first.” But there is a price for the $200 million in tax relief that LePage has proposed.

The governor’s budget takes aim at programs that support residents such as Mary Nason, a 47-year-old working mother from Winslow, whose family receives subsidized health coverage through MaineCare, the state’s Medicaid program.

Nason, who counsels people suffering from depression, and her husband, who works at Home Depot, cannot afford the health insurance that his employer offers.

Nor could they go without coverage. Nason was diagnosed 16 years ago with bipolar disorder. Her husband has heart disease, and their 5-year-old son suffers from asthma. The family’s 10 prescriptions would cost more than $800 a month without insurance, she said.

With an income of about $36,000 a year, Nason and her husband, who lost their house last year, earn just under twice the federal poverty level, making them eligible in Maine for Medicaid.

LePage is proposing to cut off eligibility for parents who make between 133 percent and 200 percent of the poverty level. That would mean Nason could stay on the program for now, but if her family income rose above $37,000 a year, she and her husband wouldn’t be able to get back onto MaineCare.

“If we face the choice, I’d have to stop working,” Nason said, explaining that she and her husband would have to keep their incomes down to stay on the government program. “I want to work. … But we can’t go without health insurance.”

LePage’s critics say people such as Nason illustrate why slashing health care programs can stunt job growth, not stimulate it.

“No one seems to be asking about the potential unintended consequences here,” said state Rep. Peggy Rotundo, a Democrat. “It’s a penny-wise, pound-foolish approach.”

LePage declined through a spokeswoman to be interviewed. But Tarren Bragdon, a top LePage adviser who also heads the conservative Maine Heritage Policy Center, said the cuts ultimately would help the state’s neediest people.

“You have to make tough choices if you want to build a better future,” he said. “If you cut welfare without cutting taxes, you’re just being mean.”

LePage, meanwhile, is barreling forward. He also wants to scale back a program that helps low-income seniors and disabled people pay Medicare premiums.

At least 48,000 poor residents could lose some health care aid under the governor’s proposals, according to estimates from the Maine Department of Health and Human Services.

LePage is not the only governor pushing to reduce health care assistance and taxes.

Pennsylvania Gov. Tom Corbett already has allowed a state-subsidized insurance program for 41,000 working poor to lapse, citing the state’s “very, very tight budget.”

Gov. Jan Brewer of Arizona is looking to cut more than 100,000 people from her state’s Medicaid rolls.

And New Jersey Gov. Chris Christie and Wisconsin Gov. Scott Walker are developing their own plans to scale back Medicaid.

All four Republican governors also have championed corporate tax breaks. Christie also has proposed to cut inheritance taxes on wealthy estates.

In Maine, newly empowered Republicans in the Legislature say they have no choice.

“We have been providing services that other states are not. We are an outlier,” state Senate President Kevin Raye said from his office off the Senate chamber. “Our highest priority is to make Maine more attractive for business.”

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