A friend of mine who lives in coastal Maine and winters in Florida owns a small business and made about $400,000 in 2011. (It is impolite in America to ask about salaries, so this is approximate.) He put $100,000 into savings and retirement, sold his small Florida condo and put $25,000 down on a larger house in his same Florida neighborhood. He lives well and without financial worry.
He was totally unaware that the 125th Maine Legislature passed tax cuts in June 2011 reducing his state tax rate from 8.5 to 7.95 percent (saving him about $3,000).
It had been a good year; while the stock market had been up and down, his business was still doing well. He seemed puzzled when I asked him if he would consider moving to a state with lower taxes so that he could take home more money. He likes Florida in the winter, but has no desire to move there permanently. He is a Mainer. His spending did not depend on his marginal income. Whether he earned $3,000 more or less was not particularly important to him — the tax cut had not registered.
A patient of mine with long-standing rheumatoid arthritis, or RA, lives in northern Maine and is a self-employed logger. He is single with one grown son. Because of his arthritis, he was out of work for 2006-2008, exhausted his savings, but became eligible for MaineCare, the state medical insurance program for the poor. Earlier he had been unable to afford insurance but with it — after a circuitous route with many medication failures — he was finally able to get on a “biologic,” one of the new class of medicines for RA. He is doing remarkably well and returned to work in 2010.
His prescription costs $15,000 per year. He has been told that with current state cutbacks to MaineCare he will lose his insurance because he is a “noncategorical,” a single adult with no dependents. Without insurance, he will do poorly, become disabled, eventually qualify for federal Medicare (but not without a 24-month minimum wait) and probably eventually get back on his “biologic” medicine.
However, if his RA is uncontrolled for the next two-four years, I doubt he will ever be able to return to work. He makes $30,000 per year and pays $3,000 per year in federal and state taxes. If he becomes disabled again he will cost society at least $40,000 per year.
The LePage administration and the 125th Legislature passed several different tax breaks in June 2011 that benefited Maine’s wealthiest citizens. The rationale was that this would stimulate business investment and help grow the Maine economy. (Despite the complete lack of any evidence that “trickle down” or supply side economics has any validity, these slogans still have political popularity.)
These breaks were unfunded; they were not accompanied by cutbacks in any expenditures or services. Legislators gave a politically popular tax break without dealing with the consequences of their false generosity.
The other shoe has now fallen. The state budget is $200M short. Cuts to education, general assistance for the poor, and medical and other programs are pending. The human cost of these cutbacks will be real, painful and ongoing. Mainers will be less well educated, less economically secure and less healthy.
Because the state mandates that all Maine towns and cities provide general assistance for the poor; Bangor cannot spend less, even if we wanted to. The cost of the Legislature’s sham “generosity” will fall on the backs of the poor — as well as middle class property taxpayers.
There is much hand wringing in Augusta about the difficulty of closing the budget gap. But there is little talk of its cause — the flawed judgment that led our governor and the 125th Legislature to give to the wealthy from the pockets of the poor and the checkbooks of the middle class.
The Legislature should have given those tax cuts the same scrutiny it is now giving budget cuts, for they are different sides of the same coin. Maine will prosper only when all Mainers recapture their buying power — it is customer demand that creates jobs, not waiting for entrepreneurs to spend their tax savings.
Augusta should reform Maine’s tax code in a way that expands the earned income tax credit, continues the circuit breaker program, reforms health care financing, restores municipal revenue sharing (shamelessly raided to balance the state budget) and honors the state’s promise of 55 percent aid to education. The investments we make in education, health care, job growth, roads, bridges and our infrastructure provide the foundation for business and economic growth.
Maine will succeed only if we invest in everyone’s potential.
Geoffrey Gratwick is a physician who practices and lives Bangor. He also serves on the Bangor City Council.