CONTRIBUTORS

Solutions to fix Maine’s broken budget

Posted June 02, 2013, at 3:36 p.m.

If Gov. Paul LePage is a man of his word, he would veto his own budget.

Recently the governor stated he would not sign any budget that raises taxes. He also claimed to have given the Legislature a budget proposal that does not require increased taxes.

Both statements are false. When the governor submitted his original budget proposal earlier this year, the conservative Washington, D.C.-based Tax Foundation rightly criticized his “stealth” income tax increase. Maine people under age 65 who rely on the homestead exemption and the resident property tax and circuit breaker program know better too. If the Legislature does as the governor proposes and eliminates these two popular programs, property tax bills for thousands of low- and middle-income families will rise significantly.

More recently, the governor sought additional changes to the budget that include another tax increase, limiting itemized deductions to $27,500. Ultimately, this would require wealthier Mainers who benefit most from itemized deductions for contributions to charity, mortgage interest and personal and business expenses to pay more.

Neither the governor nor his supporters in the Legislature are willing to face facts. Overall, tax increases in the governor’s budget proposal will hit low- and middle-income families hardest.

Better options are available. Legislators should pass a budget that supports Maine’s working families and strengthens our economy. We need a budget that restores local school funding, avoids dramatic property tax increases, promotes financial security for the elderly and people with disabilities, and creates pathways to success for struggling families. To achieve these outcomes while balancing the budget, lawmakers must choose wiser, fairer and more transparent tax increases than the ones the governor proposed.

A good place to start is to repeal the 2011 income and estate tax cuts, which are a major cause of our current budget crisis. A majority of Mainers would be far better off if we rolled back these tax cuts to avoid massive property tax increases. Low- and middle-income Mainers who derive no benefit from the estate tax cut and who pay a much greater share of their income in property taxes versus income taxes would benefit the most.

The “Gang of 11” tax reform proposes to export more of our taxes to nonresidents. This is another excellent option but only if targeted to have minimal impact on Maine families. Raising taxes on lodging, car rentals and meals would mostly affect tourists and part-time residents. Even year-round residents would pay much less than they would under the LePage property tax increases. The typical Maine family would need to spend more than $7,000 a year dining out before a 2 percent increase in meal taxes would exceed the property tax increase they will face if the homestead exemption is eliminated.

The governor’s recent proposed changes to his budget proposal point to a third option. Raising taxes on Maine’s wealthiest residents makes a lot of sense since they pay a lower overall state and local tax rate than everybody else. Capping itemized deductions is one way to do this. Another way is by increasing tax rates on Mainers whose annual income exceeds $350,000. This top 1 percent of Mainers pays approximately 1.5 cents less in taxes per dollar of income than the average Mainer and 7 cents less per dollar of income than the bottom 20 percent of Mainers. Why should a retail sales clerk or a bus driver pay more in state and local taxes as a percent of their income than the top 1 percent?

A fourth option is to scrutinize Maine’s business tax exemptions and subsidies to root out those that don’t deliver promised jobs and economic benefit. Why should Maine taxpayers directly subsidize the profits of Walmart, Nestle and other out-of-state companies? This is unfair and does not create good jobs or a stronger economy. Redirecting some of these resources to investments in education and workforce development, research and development, and roads and bridges will do far more to promote growth and prosperity for all Maine families.

Maine families deserve better than veto threats and budget gimmicks that actually raise their taxes. We’ve already cut spending to historically low levels, and even the governor’s finance chief admits there is no more “low-hanging fruit.” By repealing income and estate taxes for the wealthy we can’t afford, asking visitors and seasonal residents to pay their fair share, and adopting other sensible reforms, lawmakers can make our tax code more equitable, close our budget gap and provide the revenues needed to invest in Maine families and Maine communities.

Garrett Martin is executive director of the Maine Center for Economic Policy.

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