With a mish-mash referendum question about lowering Maine’s income tax and further restricting welfare benefits likely headed to the fall 2016 ballot, expect to hear a lot of misinformation in the coming year.
Case in point: Two seemingly contradictory bits of information released earlier this week that Republicans have begun to use to bolster their income tax-cutting case. Maine’s tax burden has dropped by more than 40 percent in five years, said one report, while another said Maine is among the 10 “least tax-friendly” states. Both reports contain some truthful information but obscure the complexities of tax policy.
The Maine House Republican Office put out a press release Monday proclaiming “Maine’s overall tax burden down 41 percent since 2010.”
The office was touting reports from Truth in Accounting, a nonpartisan anti-debt group that showed Maine’s “taxpayer burden” had dropped 40 percent between 2010 and 2014. The group calculates tax burden by dividing the money needed to pay government bills and debts (with retirement fund liability being a priority for the group) by the number of taxpayers in the state. In 2014, Maine’s burden under this calculation is $8,800 per taxpayer. It was $15,000 in 2010, according to the group.
This is a simplistic calculation of “debt” per taxpayer. It is not a measure of tax burden because it has nothing to with taxes that Mainers are actually paying. In the real world, taxpayers don’t all pay the same amount in taxes.
Further, a large chunk of the money that pays for state services comes from the federal government. For example, Medicaid spending in Maine totals about $2.5 billion a year; the federal government accounts for more than 60 percent of those dollars. With federal funds, Maine is considered a “taker” because the state receives more federal dollars than its residents pay in.
The second report, from Kiplinger, ranked Maine among the 10 worst states for taxes. Kiplinger criticized Maine’s “steep” income tax rate and comprehensive sales tax. The tax portion of the convoluted tax and welfare referendum question the GOP unveiled Wednesday focuses on lowering and eliminating the state’s income tax. Gov. Paul LePage has already said the sales tax would have to be raised to compensate. That’s a tax shift, not a true reduction.
A more accurate reflection of Maine’s true tax burden — and, hence, how to address it — has come from the Tax Foundation. Unfortunately, the last year it analyzed was 2011. Then, Maine was ranked 14th in the nation for its tax burden. The Tax Foundation calculated tax burden by comparing all taxes paid by Mainers with the state’s per capita income. One reason the burden was high was because Maine’s per capita income was well below the national average.
Yes, Maine taxes — particularly consumption taxes — could be lowered and rebalanced. But raising incomes, which continue to lag the national average, is more important.
Yet the governor remains obsessed with only the tax side of the equation. “Until legislators get serious about fixing our state’s punitive and outdated tax structure, Maine will continue to make the bottom of these lists,” Peter Steele, a LePage spokesman, said of the Kiplinger state tax list.
Lawmakers have gotten serious about changing Maine’s tax structure. In 2009, they hammered out a package of changes that reduced Maine’s income tax and broadened the state’s sales tax base to balance the books. Voters repealed it after a people’s veto led by Republicans.
In 2011, after winning control of both chambers of the Legislature, Republicans passed what they called the “largest tax cut in Maine history,” which lowered the state’s top income tax rate from 8.5 percent to 7.95 percent, and later left a shortfall that has to be backfilled every year.
Two years later, a bipartisan group of 11 lawmakers proposed another plan to rework the state’s tax code. It died in the Legislature’s Taxation Committee.
The problem isn’t a lack of effort to change Maine’s tax rates and structure. It is that LePage — and now the Maine GOP, with its referendum question, written by LePage administration staff members — are seeking to reduce and eliminate Maine’s income tax at the expense of all other possible solutions.
The endlessly repeated declaration that lowering taxes will bring prosperity rings hollow. So, instead of demanding further tax reductions, the governor should unveil a plan to develop Maine’s workforce, grow more jobs here and raise wages for the state’s workers. That would really help reduce their tax burden.
