Dining out, spending the night at a hotel, and buying a new shirt or a new car will be more expensive in Maine starting Tuesday. That’s when tax increases included in the two-year state budget will take effect.
The state sales tax will rise to 5.5 percent from 5 percent. The meals and lodging taxes will jump to 8 percent from 7 percent.
It’s regrettable taxes will rise as Maine struggles to recover from a recession that started nearly six years ago. But hikes in the sales, meals and lodging taxes are preferable to the alternative put forward earlier this year by Gov. Paul LePage.
It was evident from the start of the budget process in January that taxes were going to rise either way for Maine residents. The budget in some way had to address income tax cuts that took effect at the start of the year and forced the state budget to go without $400 million in revenue over the course of the two-year budget cycle.
The question was, on which bill would the tax increase appear, and how severe would it be?
LePage continually argued that his proposal for a two-year budget wouldn’t force a tax increase. While his budget would have eliminated revenue sharing — a funding source for cities and towns designed to control property taxes — the governor said it was the choice of local governments to raise property taxes to make up for the lost revenue or make cuts and reforms to trim expenses.
But the governor’s budget also included direct tax increases.
His proposals to scale back the circuit breaker and homestead exemption property tax relief programs would have directly increased the property tax bills of many Mainers. His budget repealed a sales tax exemption on the purchase of newspapers and other periodicals. The proposal suspended the indexing of tax brackets to inflation, a move that would leave some taxpayers paying more if a bump in their income moved them to a higher tax bracket — even if that bump was below the rate of inflation. And a later revision to his budget proposal instituted a $27,500 cap on itemized deductions — a change that amounts to a tax hike on top earners.
Ultimately, lawmakers agreed to a compromise budget that raised some state taxes and passed some of the burden along to municipalities by reversing part of LePage’s revenue sharing elimination.
In a recent BDN OpEd, Senate Republican Leader Michael Thibodeau of Winterport, a key opponent of the Legislature’s compromise budget, lamented the “Democrat-controlled Legislature’s unwillingness to make tough decisions” — structural reforms that could save government money and preclude the need for tax increases.
LePage has repeatedly made the same call for structural reforms. And Republican members on the Appropriations Committee, before agreeing to the final tax increases, repeatedly called for more spending cuts without specifying where those cuts could be made.
For someone who has spoken so passionately about the need — and potential — for major, money-saving structural reform in state government, it was telling that the only way LePage could pull together a balanced budget proposal was by eliminating not a state program, but a fund that dispenses a share of state revenues to towns and cities and by cutting back on property tax relief.
That’s not to say state government reform isn’t happening in the LePage administration. It is. It’s just that reform takes time; it doesn’t immediately yield hundreds of millions of dollars in savings that can allow a governor to cut taxes and the size of the state budget.
It’s no easy proposition to follow through on a promise to make massive cuts to the size of state government. There’s certainly room for cuts to be made, efficiencies to be achieved and savings to be realized.
But the reality of reforming state government is far different from campaign rhetoric about radical reform — which is why a state budget can include a mix of tax increases that balance the budget along with more gradual reforms that can pay off down the road.