AUGUSTA — Gov. Paul LePage used some variation of the word “prosper” at least 10 times while promoting his far-reaching tax plan during his State of the State address Tuesday.
LePage isn’t the only Republican referring to his plan as a “pathway to prosperity.” And he isn’t the only Republican governor who believes that aggressive reductions in the income tax, offset by increases in sales and other taxes, will result in a booming economy and personal wealth for residents.
His tax plan, which is giving as much heartburn to Republican lawmakers as to Democrats, reflects a national playbook, lauded in the media by conservatives and economists affiliated with the Republican Governors Association and the Heritage Foundation.
More than a dozen Republican governors are seeking to reduce income tax rates and pay for the change by raising other taxes or generating other revenue, and many are framing their proposals with versions of the “path to prosperity” language.
Arizona Gov. Doug Ducey is paying for an income tax decrease by eliminating more than 100 sales tax exemptions.
“Prosperity moves, and as taxes go up, it moves away,” Ducey said during his inaugural address.
Two days ago, Ohio Gov. John Kasich announced the continuation of a similar strategy in a two-year budget that includes a $2.5 billion sales tax increase that will pay for further reductions in the income tax rate.
“The reforms in this budget will help create opportunities and jobs for all Ohioans — keeping us on the road toward solid, sustained prosperity throughout this great state,” he wrote in his budget document.
South Carolina Gov. Nikki Haley has proposed a gas tax increase in exchange for reducing the top state income tax rate from 7 percent to 5 percent, fulfilling an idea she laid out in her inaugural address.
“In our coming actions,” Haley said, “we must recognize that we will not produce the jobs our people deserve by placing higher tax burdens on our workers and our small businesses. And we will not reach prosperity by increasing state government’s share of our economy.”
CONSERVATIVES LAUD LEPAGE
A core belief among the governors is that economies thrive when income taxes are low and regulations are minimized. One influential promoter of the concept, Travis H. Brown, is a strategist and fundraiser for the Republican Governors Association, a Washington, D.C., nonprofit that spent $55.9 million helping elect Republican governors in 2014. That includes more than $5.2 million to support LePage’s re-election.
Brown was invited by LePage to the Blaine House in 2013 to discuss “wealth migration” between states with varying tax rates. Brown’s premise: Money and people move from states with higher income and estate taxes to those with low or no income taxes.
LePage, who introduced Brown before his presentation, was impressed.
“It’s amazing when you look at states without income tax and states with income tax,” he said. “It’s phenomenal.”
LePage used the presentation to reiterate his vow to eliminate Maine’s income tax. His $6.3 billion budget is a step toward that goal, reducing the state’s top rate from 7.95 percent to 5.75 percent beginning Jan. 1, 2016. He also will propose amending Maine’s Constitution to enshrine the income tax phase-out. Maine would become the first state to do that if voters approve such an amendment.
“If Maine is to prosper, we must have courage,” LePage said during his address Tuesday.
LePage surprised political observers with a tax plan that includes a sales tax increase, since he and other Republicans had pledged never to raise taxes. But the governor’s advisers are quick to point out that his plan will decrease taxes overall.
LePage’s plan has been heralded by national conservatives, including Brown, the RGA strategist, who last week described it as “the most ambitious” of state tax reform ideas in 2015 in an opinion column in Forbes.
“LePage knows better than anyone that Maine must remain competitive,” wrote Brown, who authored the book “How Money Walks.”
In a Wall Street Journal column last week, Stephen Moore, the lead economist of the Heritage Foundation, listed 20 tax-reduction efforts in states with Republican governors. He included LePage’s plan among the honorable mentions.
“Most of the 31 Republican governors recognize that the states with lower taxes on working, investing and business activity are winning the competition for jobs and businesses,” Moore wrote.
In 2013, he and Arthur Laffer, a former economic adviser to President Ronald Reagan, wrote a column in the Wall Street Journal headlined, “The Red State Path to Prosperity,” language that is resonating through Republican-led states.
Laffer, Moore, Brown and Rex A. Sinquefield, a retired American financial executive and significant donor to the Republican Governors Association, co-authored an influential book published in April 2014, “An Inquiry into the Nature and Causes of the Wealth of States: How Taxes, Energy, and Worker Freedom Change Everything.” The book, a New York Times bestseller, argued that the pathway to prosperity is to reject “so-called progressive tax schemes designed more to curry favor with selected constituencies than to create an economic system that leads to individual wealth as the reward for hard work and entrepreneurial risk taking.”
It asserted that prosperous states would be those that reduced or eliminated the income tax, did away with estate and inheritance taxes, and implemented right-to-work laws — all proposals that LePage is advancing in his second term.
The New York Times has noted that Republican governors are defying the no-tax-increase ethos advanced by the Republican National Committee and some conservative activists. In a similar story, Politico contends that Republican governors have learned hard lessons from Kansas Gov. Sam Brownback, who moved quickly in 2011 to cut income taxes, believing that would unleash a flood of business investment. When massive deficits accrued instead, Brownback moved to broaden and raise the sales tax.
Meg Wiehe, state policy director for the Institute on Taxation and Economic Policy, a left-leaning organization that evaluates tax reform initiatives, questions whether journalists are making accurate appraisals of Republican policy in Maine and other states.
“It’s frustrating to me because they’re not looking hard enough,” she said. “I just don’t think that it’s true that governors have taken a lesson from Brownback and aren’t following the supply-side ideology anymore.”
She said most of the tax overhauls, including LePage’s, will benefit the wealthy further at the expense of low- and middle-income earners. In a January report, her organization concluded that in 2015 the poorest fifth of Americans will pay 10.9 percent of their income in state and local taxes, the middle fifth will pay 9.4 percent and the top 1 percent will average 5.4 percent. Maine ranked 44th in the country in regressivity.
“With growing income inequality, it makes no sense for lawmakers to hitch their revenue wagon to people whose incomes are stagnant or even declining and to not rely on folks at the top of the spectrum who are seeing tremendous income growth,” she said.
Wiehe added that there are elements in the governor’s plan that could help mitigate impacts on low- and middle-income residents, including tax credits. However, those initiatives could easily get cut if the state encounters a future revenue shortfall.
LePage, meanwhile, has vowed to plow forward and urged the Legislature to get behind him. The states, he said, were ground zero for change, the “50 laboratories of democracy.”
“I want prosperity for all Mainers,” he said. “We must work together to make it happen. We must take bold action now.
Steve Mistler — 620-7016