MACHIAS, Maine — The chairman of the Washington County commissioners is beating the drum in support of a tax reform proposal being floated by the administration of Gov. Paul LePage that would benefit Maine’s poorest county.
The Free ME initiative, the brainchild of the Maine Heritage Policy Center, calls for eliminating state taxes in Maine’s most economically distressed county.
Under a formula suggested by the conservative think tank and based on unemployment, poverty, the five-year change in population and the five-year change in private-sector share of personal income, Washington County is ranked as Maine’s poorest county, with Aroostook a close second.
The initiative, which the LePage administration may bring to the Legislature but is already running into Democratic opposition, would eliminate the state personal income, corporate income and sales taxes in the poorest county in order to spur investment and boost the local economy.
One of the biggest potential beneficial impacts would be for Calais, Washington County’s largest city, argued Chris Gardner, chairman of the county commissioners. Eliminating the state sales tax would spur more Canadians to come to the border city for retail shopping, he suggested.
Changes in Canadian tax policy in recent years have driven more people in that country to shop in the U.S., noted Gardner.
“That’s real evidence that tax policy matters in the border communities like Calais,” he said Thursday.
Gardner, who said he had previously been briefed by the Maine Heritage Policy Center on the tax proposal, added that elimination of the state sales tax “could have an immediate impact” on Calais, which “has done a pretty good job” of establishing itself as a retail center.
State Rep. Joyce Maker, R-Calais, agreed.
“It certainly would attract people to this area,” said Maker, “which would help everything. It would create more jobs, which is what we want to do in this area.
“I think it’s a great opportunity. It’s a test to see what would happen. … I think it could help us,” she said, as well as the entire state.
“I’m hoping we get a fair hearing on it,” said Maker.
Harold Clossey, executive director of the Sunrise County Economic Council, Washington County’s economic development arm, was noncommittal about the proposal but agreed it likely would benefit Calais.
“I would agree there certainly would be some effect there,” said Clossey, but it would depend on “the type of Canadian shopper,” he added. Saving sales tax on the purchase of a car would be significant, he noted, but not that much for someone shopping for milk and bread at a grocery store.
The proposal to eliminate corporate income taxes would help existing businesses in Washington County, Gardner pointed out.
“Any advantage you can get is a big deal for these businesses. They operate on thinner margins than most,” he said, because they face higher costs for their supply chains, transportation, and lack of close proximity to markets. The proposal would help bring “stability and relief” to some businesses, he said.
“More importantly … it’s really about attracting businesses that are not here yet,” not just helping existing businesses. “We need more people to pay taxes,” observed Gardner. “We don’t need people to pay more taxes.”
Eliminating personal income taxes would help attract more people to live in Washington County, which it desperately needs, said Gardner.
“Anything we can do to entice people to live in this county,” he argued, should be a top priority.
Some communities, notably Calais and Robbinston, still are struggling over school budgets, Gardner pointed out. School systems are struggling because per-pupil costs are too high, he said. “The real illness is we don’t have enough kids any more,” said Gardner. “As a county we are literally dying. We have more deaths than births.
“If we don’t stem this population decline, we’re just rearranging deck chairs on the Titanic,” said Gardner. “This type of initiative … is exactly the type of thing that could be a real shot in the arm,” altering the economic dynamics of Washington County and Maine.
Tax relief for Washington County is “not a new idea, and not a Republican idea,” said Gardner. A study commissioned by the administration of former Gov. John Baldacci proposed making Washington County tax-free for retirees, he noted.
“I appreciate the fact,” said Gardner, that some Democratic lawmakers view the proposal as a temporary measure. “But we have to prove the concept” that tax reform makes a difference, “and then build on that.”
“We have to do something different,” he added.
“Population decline is the biggest problem we are facing here in Maine,” said Gardner.
The Sunrise Economic Council will consider the proposal, said Clossey, who was not entirely familiar with the initiative. “With any new policy idea, as a council, we have to weigh the pros and cons of it.
“It’s an interesting idea,” he added, “and we’re going to stay very nonpartisan on this issue. We want time to evaluate it and decide our official stance on it.”
“My first instinct is, yes, that would be very beneficial … but we wouldn’t want to jump to conclusions.”
“Some people,” said Clossey, referring to leading Democratic state lawmakers, “think it’s a bad idea.” In addition, he said he was “not sure how it would fly in southern Maine.”
Eliminating the personal income tax and sales tax would give people more disposable income, said Jonathan Reisman, associate professor of economics and public policy at the University of Maine-Machias, although he noted some Washington County residents do not pay state income taxes. That could help local businesses to the extent that people spend more disposable income in Washington County.
“Bottom line,” said Reisman, who supports the proposal, “not paying those taxes means more money in Washington County in people’s pockets.” Washington County’s personal income and sales taxes total a combined $35 million, according to the policy center.
Eliminating the sales tax could encourage people elsewhere to shop in Washington County, too, he suggested. Reisman referred to car sales as an example.
He downplayed the suggestion that the proposal is a political gambit to help LePage, who is seeking re-election in 2014. There are not enough votes in Washington County or the other poor counties that potentially would benefit to make a difference, he said.
Reisman, who referred earlier to the county’s “substantial underground economy,” said the proposal “might drive that portion of the economy back above ground.” That underground economy includes people who work for cash, noted Reisman, such as in the fishing industry.
“You’re removing some of the disincentives for being above ground,” he said, but not all of them. “Part of it is cultural.”
J. Scott Moody, CEO of the Maine Heritage Policy Center, said the closest thing to the proposal is an initiative in Kansas that was adopted two years ago. People who move into a county that is losing population may qualify for a five-year abatement on personal income taxes, he said. The Kansas initiative is “rather limited,” noted Moody, since it only applies to people moving in from out of state.
Responding to criticism from some Democrats who suggested the proposal would only provide temporary, limited aid, Moody said, “It’s only limited, but it’s not a time limit. It’s based on Washington County actually recovering at the state average.”