December 12, 2017
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Can Maine make schools better by raising income tax on high earners?

By Christopher Cousins, BDN Staff
Updated:
Linda Coan O'Kresik | BDN | BDN
Linda Coan O'Kresik | BDN | BDN
Gov. Paul LePage answers questions from the third graders at the Brewer Community School on April 2, 2016, following the signing of LD 1609. The bill made the American lobster the official crustacean of Maine.

AUGUSTA, Maine — One area where politicians of all stripes can usually find common ground is supporting schools, but this November’s Stand Up for Students referendum is an exception.

If successful, the referendum would funnel tens of millions of new dollars directly to public schools in Maine with the intention of bringing state support for K-12 public education to 55 percent of the total cost. That’s been a goal for some in Maine since 2004, when voters approved a citizen-initiated referendum to increase the state’s share of public education funding to 55 percent.

The state has never met that threshold and is currently funding about 47.5 percent of the total cost, according to the Stand Up for Students coalition. Maine legislatures, however, have regularly changed the way state aid to education is calculated, and some — including Republican Gov. Paul LePage, who opposes the referendum — argue that Maine spends more per student than at any time in its history.

Voters in November will be asked again whether they want state funding for education to reach 55 percent. This time the referendum identifies a funding source.

Sound good? To some it does. To others, it’s among the worst things that could happen to Maine’s economic prosperity.

Why?

Keep reading.

What’s the initiative?

It’s a new tax on the wealthy. In March, the secretary of state’s office verified nearly 67,000 signatures, which authorized the Stand Up for Students initiative for the November ballot. If successful, it would put a 3 percent surtax on any income over $200,000 annually, generating in the neighborhood of $157 million a year.

That’s enough to bring the state’s share of education costs to 55 percent, proponents say.

The tax would not apply to individuals, households or businesses that make less than $200,000 a year. The initiative would establish the Fund to Advance Public Kindergarten to Grade 12 Education to ensure that the proceeds are spent on in-classroom costs, as opposed to administration. The new surtax would kick in Jan. 1, 2017.

Why?

Some believe Maine schools need more funding. State funding for schools has crept upwards under LePage, but only slightly and according to some education advocates, slower than the rise in total cost of education, which is driven by increases in salaries and other services, such as insurances and supplies. A 2015 report by the Maine Education Policy Research Institute found that total expenditures on Maine schools increased by less than 2 percent when adjusted for inflation between 2004 and 2014.

The initiative also is meant to ease upward pressure on property taxes, which along with state aid, pay for public schools. In recent years, the state has increased how much local communities must raise in order to qualify for full state funding, with a number that is called “the minimum expected property tax rate.” That number has gone from about 6.7 five years ago — meaning a town must raise $6.70 for every $1,000 of property valuation — to well over $8 per $1,000 today.

What are the chances it will work?

State and local governments contribute to education costs, but there are disagreements about what should be funded. The state has defined what it thinks school budgets should include through its Essential Programs and Services funding formula. Among other functions, it is supposed to keep the target the same for state government trying to achieve 55 percent financial support for education.

Communities can opt to spend more than the Essential Programs Services formula calls for, but doing so requires a special local vote. The concern with the state pouring more money into education is that municipalities will do the same, effectively making it harder for the state to hit the 55 percent target.

There have been numerous initiatives at the state level over the years aimed at reducing costs — perhaps most notably Democratic Gov. John Baldacci’s largely failed attempt to consolidate school administrations in Maine. If there is a common theme for debate over those proposals, it’s the wrangle over local control.

Can the state force local governments to spend their property tax dollars in certain ways? Can locals expect full funding from the state without guidelines or restrictions on how it is spent?

The answers are “no” and “no.”

“You’ll never get to 55 percent [state funding] because the state has nothing to do with setting up the budget,” LePage said recently during a radio appearance on WVOM. “Every year when you think we’re at 55 percent, the price goes up.”

Taxing the ‘rich’

Opponents of the surtax have a few core arguments. One is that the tax would effectively put Maine’s income tax for top earners at 10.15 percent, which the Maine Department of Administration and Financial Services says would be the second-highest top marginal income tax rate in the country. Only California, which has a 13.3 percent rate for income over $1 million, is higher. Their lower 10.3 percent rate kicks in at $263,000 for individuals and $526,000 for married couples, according to the Tax Foundation.

David Heidrich, a Department of Administration and Financial Services spokesman, said that aside from opposition to raising the income tax for some Mainers when the administration’s priority has been to reduce or eliminate it, there are two flaws in the initiative. One is that it does not distinguish between individual and joint filers, meaning any individual or family with taxable income over $200,000 would be subject. Also, the $200,000 threshold is not indexed for inflation, meaning it will remain at $200,000 into the future, subjecting more and more Mainers to the tax as incomes rise, Heidrich said.

There are more than 440,000 Mainers who pay income taxes and more than 700,000 income tax filers, according to 2014 data. The surtax would apply to about 16,000 Mainers in 2017 — which is somewhere around 2 percent of all tax filers, according to Department of Administration and Financial Services.

A stable source of funding?

Income tax collections are volatile and prone to economic peaks and valleys. Since 2005, Maine’s income tax collections have been all over the spectrum. After increases in Maine income tax collections of 17 percent and 20 percent in 2006 and 2007, for example, the financial crisis in late 2008 caused drops of 32 percent and 20 percent in income tax collections in 2008 and 2009, respectively. More recently, year-over-year fluctuations have ranged from a 36 percent increase in 2012 to a 12 percent decrease in 2013.

Those fluctuations already create revenue holes and surpluses that reverberate through state and local budgets on a year-to-year basis. Opponents of the Stand Up for Students initiative worry that funding for schools would be increased in prosperous years, leaving state or local governments to pick up the slack in lean years.

Cost versus benefits

Most people agree that the success of Maine’s economy is tied to the success of its public schools. But would more money from the state translate to more success? Would it guarantee relief to property taxpayers? Those are the goals, according to Stand Up for Students.

“When the state fails to pay its share of school funding, our children and our communities suffer,” the initiative’s website reads. “The coalition supporting Stand Up for Students asks the wealthy to pay their fair share so the state of Maine can meet its commitment to fund 55 percent of pre-K to 12 education. Fully funding our public schools helps our children, our communities and eases the burden on property taxpayers.”

Opponents question the premise that more spending will improve the quality of Maine schools, and the campaign for this year’s ballot question will play out against a backdrop of the state’s years-long but unresolved debate over how best to measure student achievement.

Voters will deliver a final grade for this latest funding proposal Nov. 8.

 


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