EDITORIALS

Eliot Cutler offers good ideas to lower property tax. Is he the candidate who can implement them?

Posted April 15, 2014, at 9:46 a.m.
Eliot Cutler
Eliot Cutler Buy Photo

Which tax bill this year will likely force you to shell out the most money? It’s probably the property tax bill that arrives from your local town office.

The property tax is Maine’s single largest tax. Property tax collections in 2010 worked out to $1,786 per person, placing Maine 11th in the nation. By comparison, the state collected $745 per person in sales tax and $981 in income tax, according to data compiled by the Tax Foundation.

And property taxes — which account for about 40 percent of all taxes collected in Maine — tend to hit low-income homeowners hardest. A 2009 Maine Revenue Services analysis showed the bottom 20 percent of taxpayers paid 30.6 percent of their income in property taxes, compared with 2.5 percent among the top 10 percent of taxpayers.

Maine’s above-average property tax burden, continued upward pressure on the tax as towns and cities attempt to make up for lost state revenues, and a lack of any major change in Maine’s basic tax structure for nearly 50 years provide the grim backdrop for independent gubernatorial candidate Eliot Cutler’s latest policy rollout.

Cutler on Tuesday unveiled a property tax relief package that would reduce average property tax burdens for homeowners across the state by 20-40 percent, making up for it by boosting state aid to towns and cities.

The reductions come from a greatly expanded homestead exemption that would spare the first $50,000 of a property owner’s home value from taxation — up to 50 percent of the home’s value. Towns and cities would recover most of the tax revenue they forfeit from the state.

Maine’s current homestead exemption applies to the first $10,000 of the home’s value, and the state reimburses municipalities for half of the lost tax revenue.

By boosting state aid to make up for an expanded exemption, the state can get something specific in return — in this case, property tax relief for full-time Maine residents — rather than issuing aid without restrictions and hoping the result is property tax relief. Cutler includes an adjustment so small businesses and family farms, which sometimes don’t benefit from the homestead exemption, aren’t hurt when the state targets property tax relief directly to homeowners.

Cutler’s plan puts forward two options to pay for it all. One includes a 7 percent sales tax in the summer that drops back to 5 percent in the winter, keeps Maine’s meals and lodging taxes at 8 percent (they’re slated to drop back to 7 percent next year) and devotes a third of the increased revenue to market Maine’s brand, applies the sales tax to amusements and recreation, collects sales tax from online purchases, and raises the real estate transfer tax to 1 percent from 0.44 percent.

The alternative is a straight sales tax hike to 6 percent — the current rate is 5.5 percent, and it’s slated to drop back to 5 percent on July 1, 2015. Cutler says he prefers the first ensemble of changes and is open to others.

Cutler proposes a range of fine proposals that, if implemented, would reduce property taxes for full-time Maine residents and export more of Maine’s tax burden to the millions of tourists who visit the state each year. The one element the policy package is missing is a discussion of property tax relief for low-income renters, whose traditional option for an income-based property tax refund — the circuit breaker — has been diluted.

Cutler isn’t the first to propose much of what’s included in his property tax relief plan. The expanded homestead exemption, for example, was also the foundation of a far-reaching tax reform package proposed last year in the Legislature that failed to garner sufficient support. That package — and many other failed tax reform efforts — sought to, in broad strokes, lower one tax and make up for the lost revenue with an expanded sales tax.

Since the ideas have been tried repeatedly, the question ultimately comes down to leadership and the ability to draw wide support for the complicated and politically volatile issue of tax reform. What makes Eliot Cutler the leader who can successfully improve Maine’s tax code?

Cutler is right to point out that governors have rarely stood behind tax reform proposals and offered their clout; reform efforts in recent memory have been legislator-driven. What he has to prove between now and November is that he has the leadership ability to implement these needed reforms.

 

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