Good for Gov. Paul LePage. He has opened a fantastic debate on tax reform, surprised nearly everyone, sent both parties scrambling, shook up the lobbyists — and he didn’t say anything offensive.
But let’s be clear. There is no chance the governor’s proposal will be enacted as presented. He attacks too many special interests and provides something (sometimes a lot of things) for everyone to dislike. But it is my hope that his bold step will bring everyone to his table, and result in the comprehensive tax reform we’ve needed for a long time.
The best and most detailed description of the governor’s plan was offered by the Tax Foundation, a nonprofit group that, according to its website, “works to educate policymakers and the media on tax reform.” You can read that report at www.taxfoundation.org. I discovered the foundation’s analysis of the governor’s proposal by reading a Facebook post by State House reporter Steve Mistler, who writes for this newspaper.
Mistler called LePage’s tax reform package a “bombshell,” and he got that right. He also reported that it “would likely generate opposition from Democrats while also putting Republicans in a pickle.” Right again.
Some of LePage’s proposal resembles a tax reform plan enacted by Democrats in 2009. Republicans punished Democratic candidates in brutal ads for supporting that bill, and led a successful statewide referendum effort to repeal the reforms later that year.
I remember some of that campaign very clearly, including severe criticism of the Democrats’ move to expand the sales tax to lots of items, including golf and skiing. Republicans called it the “fun tax.” Well, guess what? LePage’s proposal expands the sales tax even further, and includes sales taxes on lots of fun, including golf and skiing, movies, dancing and music lessons.
But his fun tax isn’t what will draw the strongest opposition. That will come from hospitals and colleges that would pay property taxes, and lawyers, accountants, engineers, architects, photographers and financial planners who would have to charge and collect sales taxes on their services. And without a doubt, the elimination of the income tax deduction for charitable contributions will raise alarm in that community (and maybe at your house, too).
You might raise your voice against the elimination of the income tax deduction for mortgage payments. And you will surely examine the new income tax structure to figure out how you will fare. If you are under the age of 65, you might object to the loss of your homestead property tax exemption, while if you are older, you will applaud the doubling of your homestead exemption. Yes, there is plenty to applaud in LePage’s very bold tax plan.
And we would be making a mistake to try to calculate the total impact on each of us, and make our decision to support or oppose the reforms based on that. If we are going to be able to make the adjustments that are needed in our system of taxation, it cannot be all about us as individuals. This is about the collective us.
Here’s my biggest concern about the reforms. The essence of the governor’s reforms would significantly lower income taxes and make up much of the lost revenue by substantially increasing the sales tax rate and the items covered. So far so good, but the initiative does nothing to reduce property taxes — our biggest problem — and actually will result in significantly higher property taxes, especially in rural Maine. We currently raise more revenue from the property tax than either the sales or the income tax. And the governor’s plan will make that problem much worse.
Many studies have recognized our property tax problem. The Brookings Institution noted, in 2006, Maine’s “second-highest property taxes in the nation,” reporting “it will be imperative for leaders to address once and for all the tax code’s extreme over-reliance on property taxes and its overly narrow sales-tax base.”
I also believe the governor is making a mistake to eliminate programs, including revenue sharing, that provide funding for local services, leaving us with only the regressive property tax to pay the bills. For one thing, a lot of spending at the local level is driven by state mandates and requirements, including waste disposal and education.
In its complexity, the governor has seeded his defeat. But he deserves lots of credit for starting us down this very important road. Hopefully, there will be no turning back. Full speed ahead.