The Taxation Committee this week passed a proposed package of changes to the state’s tax system. Before lawmakers delve into debating the details of the plan — and a competing one from Democrats — a fundamental question must be answered. Can the state afford the changes?
Arguments will be made that taxes are money that belongs to Maine citizens and that the more they can keep in their pocket, the better. In isolation, this makes sense. But Maine residents expect a lot of services, and they expect them to be provided to a small population spread over a big geographic area, which is expensive.
Maine’s tax burden is too high. One reason is that wages — the denominator in the tax burden calculation — are too low. Another is that the state’s top income tax rate kicks in at a very low income level, something that is addressed in the tax package.
If lawmakers are serious about lowering state tax assessments, they must match tax cuts with reductions in state spending.
Although the budget proposed by Gov. Paul LePage, now being considered by the Appropriations Committee, cuts funding for many state services, state spending actually would increase by about $500 million over the next two years.
In other words, there isn’t extra money lying around that can be returned to residents and businesses in the form of tax cuts.
Worse, the governor’s budget plan increases taxes on some — state workers and teachers. These workers would be asked to contribute an additional 2 percent of their income to the state retirement system. This will in no way reduce the unfunded liability, which State Treasurer Bruce Poliquin breathlessly warns will bankrupt Maine, because the governor proposes to decrease the state’s pension contribution by 2 percent, freeing up money for tax cuts and other expenditures.
If this pension change is rejected or radically altered by the Appropriations Committee, it would seriously harm the prospects of any proposed tax cuts.
Likewise, proposed cuts to the state’s general assistance program and other social service programs won’t make the problems they aim to ease go away. Instead, local communities will bear this burden, likely leading to higher property taxes.
Lawmakers are right to seek to rein in spending and lower the state tax burden, but this work must be done in a responsible way without simply passing costs from one group of taxpayers to another.