SALES TAXES and similar EXCISE TAXES (on beer, wine, tobacco, gasoline, etc.) are regressive because they take a bigger bite out of the people who live on modest paychecks — spending much of their paycheck for food, gasoline, and heating oil — than they do out of the wealthy. The higher these taxes, the more regressive they are.
If there's a sales-tax exemption for groceries, as there is now in Maine, the regressiveness of the tax is moderated. If there are exemptions for most services, such as those provided by lawyers, accountants, and financial advisers — as there are now in Maine — the regressiveness is increased. The well-off use services more than the less-well-off do.
When INCOME TAXES dominate tax collections and, within the income tax system, rates increase as income goes up, that's progressive taxation. If everyone pays the same (flat) income-tax rate — the Gang of 11 has proposed a flat 4 percent individual income tax — that's a regressive tax because the rich have a better ability to pay income taxes than the poor and middle class.
Maine's ESTATE TAX is an 8-to-12-percent graduated tax on inherited wealth. In the 2011 tax reductions, not only were income-tax rates lowered, but also the estate-tax exemption of the first $1 million of property was increased to the first $2 million — a straight-out gift to millionaires.
Is the municipal PROPERTY TAX progressive or regressive? Economists lean toward saying regressive, but they debate this point. And it depends on where you live. In some Maine towns the many second homes owned by out-of-staters tend to increase the tax's progressivity for the residents.
Then there's the issue of SALES- AND INCOME-TAX BREAKS or "tax expenditures." In 2008 the Phoenix studied state tax breaks and determined that, if they didn't exist, state government would be $3.4 billion richer annually. (See "Tax Break Heaven," by Lance Tapley, February 22, 2008.)
Some breaks benefit the poor and middle class, like the groceries sales-tax exemption, but in our study $1.5 billion per year went to the corporations and the rich. Many had been enacted to further economic growth, but — in a familiar tune — no data had been accumulated to ascertain whether they had achieved that goal. The Gang of 11 plan would wipe away many tax breaks for rich and poor, but only in the context of other big changes.
The Phoenix invites you to look at the chart and choose the option or options you want to urge your legislator to vote for, or the governor to support.
Tax choices in the Legislature
A FEW DETAILS...
Many other tax proposals being considered are similar to separate provisions of the Gang of 11 tax overhaul. For example, independent Representative Ben Chipman of Portland has a bill, LD 1227, to hike the lodging tax from 7 to 12 percent. An increase in the lodging and/or meals tax has traction this session.
F The Buffett Rule proposal, LD 1113, sponsored by Democratic Representative Seth Berry, House majority leader, is based on billionaire Warren Buffett's idea — pushed by President Obama — that his federal income-tax rate shouldn't be less than his secretary's. This bill has traction, at least among Democrats.
F All of the numbers in the chart are estimates, many given by a proposal's proponents.