Policy Wonk: Concrete alternatives to the LePage budget

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As this column was about to go to press, a bi-partisan group of legislators led by Sen. Richard Woodbury, U-Yarmouth, released a bold proposal to reform state taxes and tax expenditures.

There is a lot to like in the bi-partisan reforms, but some provisions will almost certainly generate push-back from many directions. Within the next few weeks, as refinements emerge, I will prepare a more detailed assessment of these sweeping reforms.

Two things seem clear: the Woodbury reforms and the alternative reforms presented here agree that the governor’s budget is unacceptable. And, a compromise – a middle-ground between the Woodbury proposals and the Governor’s budget – may be useful.

Gov. Paul LePage’s budget pays for his $200 million dollar tax cuts, and tax reductions currently being proposed, by eliminating municipal revenue sharing, flat-funding education outlays, shrinking regulatory and infrastructure outlays, and reducing welfare spending further than he already has.

His budget allows municipalities to increase property tax burdens to maintain whatever level of services they choose. But he knows full well that property taxes are already high, and that the majority of municipalities do not have the property tax base to meaningfully take up this option.

In sum, his budget continues a strategy of shrinking state government by shifting cost burdens to municipalities. It’s a cynical strategy that compromises Maine’s future. It bears down on the poor, the needy, the elderly, education, and our infrastructure.

A more fair alternative would:

1 — Increase meal, accommodation, and rental car sales tax rates to the average imposed in other east coast states. These increases fall largely on visitors to Maine who now contribute far less than the costs they impose on state and local governments. These increases will not deter visitors, they merely align us with states we compete with for tourist dollars.

2 — Extend the sales tax to a wider range of primarily high end services, i.e., theatre, musical, athletic performances; recreational activities like golf, tennis, and skiing; non-medical spa and beautician services; legal, accounting, architectural services, etc. Again, this broadening of the sales tax merely aligns us with similar provisions in most other states.

3 — Political reality suggests that Lepage’s 2011 income tax cuts, largely benefiting the wealthy, will not be fully repealed or even postponed. Republicans seem adamant on this point. That said, the Legislature should embrace Wilton Republican Sen. Tom Saviello’s modest proposal to (very slightly) raise income tax rates on those earning more than $250,000. The wealthy can bear this increase.

4 — In the same vein, the Legislature should roll back the governor’s 2011 estate tax changes. These changes also benefit only the wealthy. They represent a revenue loss of $30 million annually. Repealing this windfall would not put Maine’s estate tax out of line with other states in the region or nation.

5 — Given the fact that Maine’s highway/bridge infrastructure is deteriorating at an alarming rate, but again, bowing to Republican opposition to a direct fuel tax increase, we can/should restore the annual cost of living adjustment to Maine’s existing fuel tax, which was repealed in 2011. Funding for essential highway repairs must at least keep up with inflation.

6 — “Homestead” property tax relief, which benefits homeowners uniformly, should be eliminated, or put on a sliding scale that declines sharply as the value of the home increases. Wealthy homeowners do not need property tax relief. If homestead benefits are eliminated, “circuit breaker” property tax relief for low-income homeowners and renters should be retained.

This tax relief directly benefits those who need it most. If homestead benefits are put on a sliding scale, circuit breaker tax relief should extend only to renters. In either case, the circuit breaker program should be tied to income tax filings to more fully reach the benefited group.

7 — The single largest source of needed revenue lies in reducing the current level of tax expenditures, i.e., closing tax loopholes. The aggregate level of revenue lost through exemptions, deductions, credits, and reimbursements equals the amount of revenue currently raised by all forms of state taxation.

The alternative budget proposed would cap legislatively selected tax expenditure programs. The focus should be on large, wealthy corporations and individuals who are expenditure recipients. Going forward, these eligible recipients would receive (on a pro-rated basis) a reduced tax expenditure benefit. This approach would retain a significant level of scarce state tax dollars.

8 — Beyond capping selected tax expenditures, it is imperative that all such expenditures be reviewed to determine which should be retained, eliminated, or modified. That can/should be done over the next two years. Pending this review, a moratorium on new or expanded tax expenditures is needed; 31 such proposals are before the Legislature. These should be withdrawn or defeated. We can’t afford the continued leakage of state tax revenues.

9 — Finally, there is growing bipartisan consensus in Congress that Internet retail sales should be taxed. Revenue need and fairness to local retailers is driving red and blue states to press this issue. Twenty-four states have signed the Streamlined Sales and Use Tax Agreement. Maine should adopt it, adding our voice to the growing pressure on Congress to act.

Though any one of these steps could be expanded, narrowed or delayed, the alternative to the LePage budget presented here will not work if only a few timid steps are taken. The dire consequences of the governor’s budget can only be avoided if a majority of the steps proposed are adopted in some form.

Think about it.

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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 [email protected].