Could this finally be the time for major tax reform in Maine? With Democratic majorities in the House and Senate, a Republican governor, a budget gap that defies easy solutions and fatigue with stopgap measures and one-time fixes, the opportunity may never be better.
The opportunity for transformative change has been set up, possibly even deliberately, by a budget proposal from Gov. Paul LePage that is unpalatable to large segments of both parties, local towns, and members of the public.
By suspending municipal revenue sharing and terminating the homestead exemption and property tax refund programs for Maine residents under age 65, the governor’s budget can’t help but raise property taxes on Maine families.
Suppose there were an alternative that reduced property taxes for Maine homeowners by an average of more than $500 instead of raising them?
Suppose that the alternative cut income taxes for Mainers to no more than 4 percent?
Suppose that the alternative reduced or even eliminated the regressive burden of sales and property taxes on lower income Maine families, sending reimbursement checks of $1,000 or more to families struggling to pay their sales and property taxes now?
And suppose that even in reducing these taxes on Mainers, the alternative still generated as much revenue for schools, health care and other government services as we collect under our outdated tax policies?
These are the basic objectives that have guided a bipartisan group of 11 of us in shaping a tax modernization plan that we believe would transform Maine’s economy for the better.
This plan should interest people who are concerned about the regressive burden of sales and property taxes on Maine families, who continue to struggle in fragile economic times.
This plan also should appeal to people who are concerned that Maine’s 7.95 percent income tax holds back Maine’s economic growth prospects and think cutting that rate in half would help move Maine forward.
As improbable as it may seem, accomplishing this set of objectives is mathematically and logistically feasible. The secret formula (or maybe not so secret) is to scale back the many tax advantages that we currently convey to nonresidents in Maine and reassign those advantages to Maine residents instead.
We have many nonresidents who spend time here in Maine. Some are short-term visitors who flock to Maine’s spectacular recreation sites. Some are owners of second homes, who visit Maine regularly and for extended periods, but whose primary homes and employment are in Massachusetts, Connecticut, New York or other states. Still others divide their time equally between Maine and another state, but choose the other state as their legal residence.
Nonresidents share all of the benefits of Maine’s communities, roads, hospitals, environment and quality of life while they are here, but they avoid taxes that are paid by residents only.
Our aim is to draw a fairer share of government costs from everyone who spends time here. We also want to increase the incentives for more people to live and do business in Maine.
Our plan accomplishes its objectives by increasing revenues from sales and excise taxes, which are paid by both Maine residents and nonresidents in proportion to the time they spend here, and by collecting less from the income and homestead property taxes paid by Maine residents.
The property tax provisions of our plan are anchored by a $50,000 homestead exemption.
Our preliminary analysis shows that Mainers will see an average property tax reduction of more than $500 statewide. In communities with very high tax rates, Lewiston for example, the savings are even larger — an estimated reduction of $825 on a $100,000 home.
The income tax provisions are anchored by a maximum 4 percent tax rate, the elimination of nearly all special tax breaks, and the creation of two “fairness credits” that would offset sales and property tax burdens.
These credits phase-out at higher income levels, so that only single filers with income greater than $60,000 or joint filers with income greater than $120,000 pay the full 4 percent rate. Everyone else pays less.
Lower income families pay no income tax and receive a refund check that offsets, at least in part, their sales and property tax costs.
The sales tax provisions are the easiest to dislike, because the rates are higher and most routine consumer purchases become taxable. The general sales tax rises to 6 percent, the meals tax to 8 percent and the lodging tax to 10 percent.
Many additional consumer purchases would become taxable, though the specifics still need to be defined.
To those critical of our plan, we ask, “What’s the alternative?” Sticking with the high property taxes we have now, and possibly raising property taxes even more? Sticking with a 7.95 percent income tax with an endless list of complicating special treatments for one purpose or another, but which discourages economic growth?
Rather than applying more duct tape to a failing tax system, we have put forward for discussion an alternative that we believe could transform Maine’s economy, Maine business and Maine people. That’s the plan of our “Gang of 11.” We hope you will join us.
Sen. Dick Woodbury, I-Yarmouth, is an economist and former chairman of the Legislature’s Tax Committee. Sen. Seth Goodall, D-Richmond, is the majority leader of the Maine Senate. Sen. Roger Katz, R-Augusta, is the assistant minority leader of the Maine Senate.