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Maine’s avoidable budget crisis

Posted Jan. 29, 2013, at 11:42 a.m.

Despite what Gov. Paul LePage had to say about protecting the needy in his budget message earlier this month, the reality is far different. Property-tax increases and deep cuts to basic services will further erode the economic security of low- and middle-income Mainers if lawmakers don’t adopt a different plan that addresses the real causes of Maine’s budget crisis: a revenue collapse precipitated by the recession and worsened by poorly crafted and fiscally reckless tax cuts.

In order to close a two-year, $881-million gap between what the state needs for schools, roads and other services and the reduced revenue it is taking in since the 2011 tax cuts, the governor wants low- and middle-income families to pick up the tab, while giving the wealthiest Maine families and businesses — who benefited the most from the tax cuts — a pass.

His proposal would eliminate tens of millions of dollars in property tax relief for low- and middle-income Mainers, while forcing dramatic property tax increases and deep cuts to the aid Maine’s towns and cities use to fund basic public services. Meanwhile, Maine’s wealthiest households would continue to pay a smaller share of their income in taxes than everyone else.

It’s important to understand how we got here.

The current budget crisis began with a depression-sized collapse in state revenues caused by the severe economic downturn of 2007-2009. While the national economy shrank by 5 percent, Maine general fund revenue — mostly comprised of income and sales taxes — fell by about 11 percent.

Five years later, the recovery from that economic disaster isn’t going very well. Annual general fund revenue (mostly income and sales tax collections) is still $364 million below the pre-recession peak and $304 million below the modest long-term growth trend that prevailed for more than 20 years ( inflation-adjusted annual average growth of $32 million per year, or anywhere from 1 percent to 1.3 percent).

The historically bad recession and weak recovery account for most of the state’s budget gap. The remainder results directly from the actions of Gov. Paul LePage and Maine legislators in 2011 and 2012.

At a time of historically high unemployment, with nearly one in four Maine children living in poverty, with tens of thousands of Maine families struggling to stay warm, fed, healthy and find employment, lawmakers in Augusta aggravated the crisis by enacting a slew of tax cuts that overwhelmingly benefit the wealthiest families and corporations doing business in Maine.

When assessed in the broader context of the state tax and budget system, those tax cuts were a raw deal for about two in five Mainers. The poorest 40 percent of Maine households — those who are more likely to have lost a job, lost access to health care or child care, and can least afford to see their taxes go up — will actually see their overall state and local tax bill increase in 2013, based on conservative estimates by the Maine Center for Economic Policy.

Now, with a budget gap $433 million dollars bigger than it would have been without the tax cuts enacted over the past two years, the governor’s budget proposal asks not just low-income families to pay more taxes but the broader middle class as well. Even under cautious assumptions about how municipalities respond to severely reduced state funding, property tax increases would easily erase any benefits from the recent income tax cuts for low- and middle-income Mainers. Property tax increases disproportionately hurt low-income families and the middle class. Families at all income levels, whether they rent or own, pay property taxes to keep a roof over their head.

LePage and his allies say his income tax cuts removed 70,000 low-income Mainers from the tax rolls, but the more relevant fact is that the average Maine household making less than $14,000 per year saved about $7 from the 2011 income tax cuts. They will pay many times more than that in increased property taxes.

Maine people know that paving the way for economic progress means shoring up the middle class and securing pathways out of poverty, but those things don’t happen by accident. Securing the future for the middle class and families striving to provide a better life for their children requires investment in quality health care, child care and education. We can’t make those investments unless policymakers start looking at the whole state and local tax picture and ensuring that everyone pays their fair share.

Joel Johnson is a policy analyst with the Maine Center for Economic Policy.

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