Policy Wonk: Another bad idea: Eliminating Maine's estate tax

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Estate taxes apply to only a small percentage of the population, i.e., very wealthy families about to receive large inheritances. When Gov. Paul LePage took office, fewer than 500 families were affected by this tax annually – but estate tax revenues averaged $55 million a year.

In 2011 the governor and a Republican Legislature took the first step in a strategy aimed at eliminating the estate tax. They raised the amount excluded from inheritance taxation from $1 to $2 million, and put in place a sliding rate structure. These steps reduced annual estate tax revenues by $31 million.

In the 2015 legislative session, the governor’s grand tax overhaul called for large individual and corporate income tax cuts, offset in part by sales tax increases. His package included a provision that would have eliminated the estate tax.

The projected revenue losses, and tilt towards benefiting the wealthy, were too great, and his proposals were rejected by the Legislature. More modest tax changes, which balanced the budget and further reduced estate tax revenues, were adopted; the revenue loss was $10 million.

Now, in the 2016 legislative session, the governor has proposed LD 1622, which again seeks to eliminate Maine’s estate tax. If enacted, it would complete the strategy laid out in LePage’s first term, and it would reduce annual state revenues by another $14 million.

The governor argues that eliminating the estate tax will attract and keep wealthy families and individuals in Maine, where their spending and other tax payments will benefit the economy.

But there is no evidence to support this assertion. No data suggests that wealthy families are fleeing the state, or that they will flock to Maine if the estate tax is eliminated.

In fact, research by the national Center on Budget and Policy Priorities, and the University of Massachusetts Political Economy Research Institute shows that tax levels have little, if anything, to do with why people move from one state to another. They move for climate, family, health, schools, work, quality of life – but not for tax reasons.

Bottom line: LePage’s argument for eliminating the estate tax is a fraud.

However, eliminating this tax fits in with the governor’s and the Republican party’s larger tax-cutting philosophy: that cutting any or all taxes of wealthy individuals and large corporations will stimulate the economy, create jobs, and raise middle-income wages.

That’s rubbish. At the national level and at the state level (where there is a race to the bottom), taxes on the wealthy have trended down, and today are much lower than they were over the entire 50-year period from the Eisenhower to the Clinton eras.

These lower tax burdens and this “trickle-down” tax/economic philosophy did not prevent the recent deep recession. They did not quickly bring us out of that recession. And it has not over the last 40 years raised the real wages of poor or middle-class Americans or Mainers. It has simply made the rich richer and widened the income and wealth gap between the 99 percent and the 1 percent.

LePage’s suggestion that eliminating the estate tax will produce a Maine miracle, a result different from failed tax-cutting strategies at the national level and in other states, is absurd. What it will produce is another revenue loss that will require further cuts to already inadequate elementary school, university, highway, and public safety budgets.

Poor children, families, elderly and handicapped individuals, and poor towns –those with a limited property tax base – will bear the brunt of these budget cuts.

It’s a mean-spirited taxing/fiscal strategy that preys on the poor and totally ignores principles of tax progressivity. It is pursued in the name of smaller government, and fostering individual self-reliance. LePage has pursued this strategy relentlessly for five years.

It must end.

Maine is fast becoming a banana state in a banana republic. Our infrastructure is falling apart; our health-care system misses too many; our schools and transportation systems lag that of other developed states and nations. The political discord of the day suggests “we the people” are becoming more frustrated, more angry, more disillusioned. These trends, too, must end.

A small step in the right direction would reject LD 1622. Wealthy Maine families don’t need another tax cut; state tax revenues are already too low. We do need a fairer tax system, one that weighs less heavily on the poor, and more heavily on those with greater ability to pay.

In the same vein, we don’t need smaller government; we need smarter government. And we’d do well to recognize the biblical truth: “… You will always have the poor among you.” A just society needs to meet their realistic needs.

In short, we need to abandon the myth of “trickle-down” economics. Tax cuts for the wealthy have not worked. They’re killing us as a state and nation.

Orlando Delogu of Portland is emeritus professor of law at the University of Maine School of Law and a longtime public policy consultant to federal, state, and local government agencies and officials. He can be reached at orlando.delogu@maine.edu.