If a tax-reform bill doesn’t raise more money for a budget that perennially has enormous shortfalls, it would not seem to have much value. But spreading the sales tax to more business services would reduce the dependence of the tax’s receipts on the business cycle. When in a economic downturn activities like house building and auto sales plummet, tax receipts plunge, and pressure mounts to cut state programs sharply and quickly. Broadening the tax base could smooth out the shortfalls. But pairing it with an income-tax reduction — especially with a flat rate — hardly is a progressive move.
The proposal to reduce the income-tax rate seems intended to make tax reform more palatable to Republicans and the corporate community, although it didn’t have that effect in 2007. State senator Peter Mills, a moderate Republican from Somerset County who often votes with the Democrats, argued on the conference’s tax panel that reducing the top rate would both lure business owners to move their companies to Maine and entice well-off people to reside here at least six months and a day (as opposed to, say, Florida) so their income could be taxed by Maine instead of another state. Other panelists agreed. But they only had anecdotes to back up their assumptions about what the wealthy would do.
In contrast, just prior to their discussion, Michael Allen, the nonpartisan state tax economist, presented a number-crunching kind of study showing that the combined state and local tax rate for the bottom 20 percent of taxpayers — who pay proportionally more of their income in sales, property, and excise taxes — was 15.4 percent in 2006, but for the top 10 percent the rate was only 10.6 percent. His presentation, however, didn’t stimulate any panelist to comment on this fundamental regressivity (the burden is greater on the poor and the working class) of Maine’s taxes.
The lack of concern at the conference for the not-well-off was striking. The health-care panelists never mentioned the uninsured or Dirigo Health, the governor’s largely unfunded (and, many would say, failed) program to help working-class people obtain health insurance. Jesse Graham, director of the Maine People’s Alliance, an activist group, commented in an interview that the health-care discussion was a “total disconnect with what we see in the field” — which is support for a “public” health-insurance system.
After the conference, MECEP sent the Phoenix a 2007 study by the Center on Budget and Policy Priorities, a liberal Washington, DC, think tank. It showed that, statistically, a state’s “higher tax burden is related to more — not less — per capita income growth.” And, the study notes, researchers “find that state expenditures on education, infrastructure, highways, and public health matter as much or more than taxes in determining economic growth rates.”
Baldacci versus the Democrats
John Baldacci, with his veto power, remains a potential block to even the extremely modest tax reform around which Democratic legislative leadership has coalesced. At the MECEP conference, majority leader Piotti admitted that working with the administration on tax issues “has been a challenge at times.” He also mentioned that the kind of tax restructuring he’s proposing has never been done in another state “without executive leadership.”