Recently, I heard Rick Snow speak against LD 1495, the Governor’s Act to Implement Tax Relief and Tax Reform. Rick is owner of Maine Indoor Karting in Scarborough where you can leave your financial troubles behind by wearing a helmet and jumpsuit and racing high-performance, gas-powered go-carts on a 1,200-foot track with nine corners.
Rick described the struggles of doing business in Maine in general and during the current recession in particular. Sales are down and costs, such as the cost of electricity and the cost of providing mandated health-care coverage for dependents, are up.
As a result, he has had to lay off some of his employees. Meanwhile, others have decided that they prefer going on government benefits over working to support themselves.
Rick is working with other business people in a grassroots campaign for a people’s veto of LD 1495. To date the effort has gathered more than $10,000 and 10,000 signatures. Green Party Independents have joined with Republicans in the campaign.
That’s because they all fear that LD 1495 will increase Mainer’s overall tax burden during a time of recession.
Democrats have been promoting LD 1495 on the basis that it reduces the state income tax to one flat rate of 6.5 percent. They claim that almost everyone will pay less as a result. I am wary of such promises, given their unimpressive history of predicting revenues.
The bill restructures the way your income tax is calculated so that it will be calculated differently than in the past, and differently from the way that your federal income tax is calculated. It eliminates the exemption and deduction method of calculating net taxable income and replaces it with a set of tax credits, including a base household credit, which is phased out as income increases. Your income tax is the product of the flat rate applied to your federal gross income, less your tax credits.
The bill then imposes new taxes and increases existing ones.
It imposes a 5 percent tax on all kinds of services that haven’t been taxed before, including interstate and international telecommunications; and the installation, repair and maintenance of guns, electronic and mechanical equipment, lawn and garden equipment, computer hardware and office equipment and vehicles. It taxes amusement, entertainment and recreation activities such as movies, concerts and sports events; miniature golf and go-cart courses; home, garden, auto and boat shows. It taxes personal property services such as dry cleaning, car washing, pet grooming and kenneling, and housecleaning.
The bill increases the tax on meals and lodging, liquor sold at restaurants, candy and soft drinks.
The last time that the Legislature proposed lowering the income tax and broadening the sales tax was in 2007. I opposed that proposal at the time because I thought it would be regressive and a drag on our state economy. The only thing that has changed since then is that our economy is in worse shape.
LD 1495 recycles that stabilization plan in the guise of a tax-relief bill. I suspect that it was prompted by the referendum to half the excise tax on cars. That referendum is popular because the auto excise tax is not. People resent such a big tax being imposed on one item. Every year, they struggle to pay it.
Democrats realized that it was unwise to have any one tax be responsible for generating a disproportionate share of revenue. It made revenues vulnerable to the vagaries of the economy and the vicissitudes of people. Their solution is to broaden the tax base and hope that people won’t notice their burden if it is spread across more points of taxation.
Mainers have been asking for tax relief for years; not just relief from the state’s income tax, but relief from the state’s overall tax burden, including their property tax and the auto excise tax. Some of them have tried to ease that burden by supporting initiatives such as the Paleski tax cap, TABOR, TABOR II, and the auto excise tax rollback.
But the government hasn’t responded. Instead, it has given us a new tax regime that appears to be regressive and likely to depress economic activity. While it may be revenue neutral for the moment, it is a prelude to a tax hike.
At a time of recession, when businesses are shutting their doors and people are losing their jobs, our state government needs to focus on how to encourage and stimulate productive enterprise, not on how to fund itself.