June 22, 2018
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$40 million tax break process was doomed by politics, lack of information

Erin Rhoda | BDN
Erin Rhoda | BDN
Maine State House

The specially appointed task force charged with combing through Maine’s tax laws this fall and recommending $40 million in tax breaks to eliminate or scale back fell short of its charge. While it faced a Dec. 4 deadline to deliver recommendations to the Legislature’s budget-writing Appropriations Committee, what the group has at this point is an informal list of suggestions for reaching the target.

Part of the group’s problem was political. The other part was the design of the entire task before it.

First, the political problem: Any time elected leaders contemplate changes to the tax code, they’re bound to encounter pressure from industry representatives intent on protecting their special tax status. They’re also bound to come under fire from anti-tax political opponents intent on characterizing any tax code change meant to produce additional revenue as a tax hike by a greedy, spending-addicted government.

The political problem is the reason why one of the group’s most realistic options for meeting its $40 million, short-term requirement met a near immediate death. Democrats quickly abandoned suggestions on the group’s list to extend Maine’s 5.5 percent sales tax to amusements, including ski lift and movie tickets, and to personal care services such as haircuts that have always been sales tax-exempt.

Democrats four years ago experienced the political consequences of extending the sales tax to those and other items and services in exchange for lowering income tax rates: United opposition from businesses and Republicans helped convince voters to overturn a tax reform package. Months later, the Democrats who championed the tax bill lost control of both chambers of the state Legislature.

To be sure, there’s also a consequence to not meeting the $40 million threshold, which is a provision in the two-year state budget that took effect July 1. If the Legislature doesn’t cull those savings from the state’s hundreds of tax exemptions, the $40 million will come from municipal revenue sharing, which already sustained deep reductions in the budget.

The design problem the tax task force faced was that it had to make major decisions on changes to the state’s tax code without sufficient information.

Aside from the $40 million savings target, the task force’s other job — with which it’s had more success — was to design a regular evaluation for the tax incentives, exemptions, credits and refunds that have built up in Maine’s tax code over time and haven’t been revisited.

Since evaluation of those tax policies has been so rare, policymakers have no information to use to judge whether some credits, exemptions and incentives are meeting their intended purposes and whether they should be cleared from the books or expanded. “[C]ritical elements necessary for evaluating performance and achieving real transparency and accountability have been, and still are, lacking,” the Legislature’s investigative arm, the Office of Program Evaluation and Government Accountability, concluded in 2006.

Done right, such a sorely needed evaluation, ultimately, will yield the information policymakers need to make prudent decisions on tax policy changes. But the Legislature’s tax expenditure review task force this fall was faced with the challenge of making suggestions for policy changes on a tight time frame before good information became available.

“We’re really being asked to put the cart before the horse,” said Sen. Roger Katz, R-Augusta, one of the task force members.

The consequences of a lack of good information to guide decision-making on tax policy have become clear.

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