A Broader Tax Base
2/6/09 | 14 comments
Editorials

A Broader Tax Base


Democrats in the Legislature, with the support of Gov. John Baldacci, will take another pass at reforming Maine’s tax system in the coming months. Key to the effort is a clear understanding of “reform,” a word elected officials use more freely than they should. With taxes, “reform” suggests a fix, a move toward equity, a closer adherence to a standard on which most can agree. In reality, though, reform is in the eyes of the beneficiary.

Democrats are maintaining that any revamping of the tax structure must not change the amount of revenue raised. Rather, the goal is to redistribute the burden so it is more closely linked to ability to pay, or at least to tie taxes more closely to discretionary spending. Another goal is to make state government less vulnerable to the revenue roller coaster that has plagued it in recent years.

A likely starting place is the sales tax. The 5 percent sales tax on general goods and the 7 percent tax on prepared food and lodging generated $981 million in fiscal year 2008. Compare that with individual income tax at $1.3 billion, corporate income tax at about $210 million, and cigarette and tobacco taxes of about $230 million.

Long discussed, but not yet acted on, are proposals to expand the goods and services on which the sales tax is paid. Among those services are haircuts, consultations with an attorney and auto repairs. Currently, about 45 percent of sales in Maine are not taxed, the biggest portion of which is food.

The Center on Budget and Policy Priorities reports that if Maine began taxing the services that are currently taxed in Connecticut, an additional $120 million would be generated. Among the services taxed in Connecticut yet untaxed in Maine are: leases and rentals, computer and data processing services, private investigation and protection, painting and lettering, advertising and graphic design, landscaping, janitorial services and health clubs.

Further sweetening the pot is the fact that 15 percent to 18 percent of the sales tax is paid by nonresidents.

Another course Democrats are not likely to take is to increase the sales tax rate. There are 24 states that have sales tax rates higher than Maine. Eleven states have a 6 percent sales tax, while nine states have rates ranging from 6.25 percent to 7 percent.

With a broader sales tax, the Legislature could consider revamping its income tax rates. Only three states and the District of Columbia have higher marginal income tax rates than Maine. Presently, single taxpayers begin paying the top rate in Maine — 8.5 percent — on taxable income of $18,951; married taxpayers filing jointly pay the top 8.5 percent rate on taxable income of $37,951 and more. These thresholds could be raised, if more revenue is generated through the sales tax.

A far less sweeping, but perhaps equally effective way to fix the tax system in Maine is through targeted tax credits.

If legislators are serious about tax reform, the first step is to decide whom they want to “win” under a new system, and what the implications are for the economy if that group is paying less. It’s a difficult and politically vulnerable discussion to have, but an essential one.

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Comments
14 comments on this item
On 2/7/09 at 8:07 AM, Steamship wrote:         Repeated separate thumbs down will cause comment to be hidden

As a democrat, I am very disappointed that our legislature - which has been controlled by my party for many years now, has not shown much creativity or innovation in advancing Maine into the 21st century. A republican friend likes to tease that the democrat-controlled legislature has been the greatest economic disaster to befall the State of Maine in modern history. And yet, who is to blame? Despite my unhappiness with my party, I continue to vote for the democratic candidates in all elections. At the same time, the republicans continue to keep their heads buried in the sand when it comes to many social issues that would advance the cause of the poor and disadvantaged. The fact is, we cannot continue in the direction we have been travelling. Neither party is fully right, nor fully wrong. An example would be Dirigo health. It hasn't performed anything near as promised. But the democrats refuse to compromise on changing the system to make it better for the state. We need to enhance our economic base, to make tough decisions that will set us on a better path. We are in a jam, and we are seeing very little to suggest that our legislators recognize the jam we are in. We are squandering time for the sake of political party ideology.

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On 2/7/09 at 9:42 AM, Beelzebubba wrote:         Repeated separate thumbs down will cause comment to be hidden

Maine's #1 cash crop is untaxed, widely used, and its users find themselves in legal trouble when caught. Tax it!!

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On 2/7/09 at 10:51 AM, SteveH wrote:         Repeated separate thumbs down will cause comment to be hidden

Tax reform can not begin until spending reform is undertaken.

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On 2/7/09 at 12:31 PM, landeinorono wrote:         Repeated separate thumbs down will cause comment to be hidden

SteveH hs it right! ... then we tax that cash crop!!

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On 2/7/09 at 6:59 PM, lgreen48 wrote:         Repeated separate thumbs down will cause comment to be hidden

Maine has a very small economic base compared to other states. The reason being is that we are the playground or "vacationland" for the northeast corridor. We cannot raise revenue when there a few good paying jobs. This economic malaise has been purposely created by the Democrats over the past 35 years that they have controlled our state.

Their unfair Land Use Regulations has continued to stifled our economy. It is the greatest disaster that has ever befallen this state. Every year they use mirrors to "fix" our budget. What a joke!!

Mr or Miss Beelzebubba has no one to blame but themselves for low tax revenues as they continue to vote these clowns into office every year.

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On 2/7/09 at 11:45 PM, TakeBackMaine wrote:         Repeated separate thumbs down will cause comment to be hidden

It is unbelievable that in the present economic climate anyone in actually considering or suggesting that taxes in Maine increase. Great! Let's make this state an even more unfriendly business climate. According to 2002 statistics, Maine ranks 40th in population, yet it has the one of the largest Constituents per State Legislative District (http://www.ncsl.org/programs/legismgt/elect/cnstprst.htm) in the country. It is time to get rid of half the people in Augusta as they obviously have nothing better to do than great projects such as Dirigo, nanny laws (new "distraction while driving" bills), not pay hospitals forcing layoffs of hard working medical people (Blue Hill, Mars Hill, and EMHS), and new ways to spend our hard earned money.

In case anyone complains, I can also suggest some solutions:

- reduce the legislature (both houses) by half. Cities with a larger population than the entire state are run by city councils with only a dozen people or so.

- reduce the number of Governor's Special Assistant from the current 59 (http://www.maineopengov.org/Payroll/PayrollSearch/tabid/63/Default.aspx). These people cost us over $2,000,000 a year in payroll alone.

- close Dirigo. Admit it is a failure and clearly does not work. Open the Maine insurance markets and bring in real competition that will lower prices.

- pay the hospitals. People should not be losing their jobs because the state doesn't pay it bills.

- create real incentives for companies to bring business to Maine. Many states and cities across the country have successfully done this through tax incentives. The new companies and their payrolls will help all businesses.

- All Maine agencies should select Maine companies for contracts whenever possible, even if the bid is not the lowest. The jobs the contracts create will include payroll taxes back to the state. In addition, the employees will spend their paychecks (housing, transportation, food, etc). This puts money into our economy as well as generates state income (sales, excise taxes). Everyone benefits.

- Give our schools incentives to save money, not forced consolidation and funding threats. The people voted for 55% funding. It is time for the legislature to stop ignoring the people they serve. These children are the future business leaders.

Citizens of the great state of Maine, if you are fed up with how things are being run and handing everything you own over to Augusta, Then, it is time to stand up and...

TAKE BACK MAINE !!!

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On 2/8/09 at 12:09 AM, dirigodad wrote:         Repeated separate thumbs down will cause comment to be hidden

Didn't the BDN editorial staff write an editorial addressing the so-called "liberal bias" of the mainstream media. If I remember correctly, they said that newspapers tended to lean to the right regarding economic issues...

Uhhhhhhhhh....riiiiiiight....

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On 2/8/09 at 4:41 AM, howbri wrote:         Repeated separate thumbs down will cause comment to be hidden

Three things in life are certain; death, taxes and more taxes from democrats !! Maine people get exactly what they deserve, at least those that vote democrat.

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On 2/8/09 at 5:48 AM, thekingofmaine wrote:         Repeated separate thumbs down will cause comment to be hidden

In the words of the great Matt Foley (as played by Chris Farley)...LA DEE FREAKIN' DA!

That what our Maine State Legislature is to me.

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On 2/8/09 at 9:43 AM, Govt2Big wrote:         Repeated separate thumbs down will cause comment to be hidden

We don't need a broader tax base, we need state leaders whom realize we must CUT a lot of positions and programs/services. Our state needs to go back to the basics and get things done. It's time for the spineless liberals to step aside so we can fix this state, enough is enough.

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On 2/8/09 at 12:48 PM, David889327 wrote:         Repeated separate thumbs down will cause comment to be hidden

"This economic malaise has been purposely created by the Democrats over the past 35 years that they have controlled our state."

--lgreen48

Is it possible that Maine is not experiencing the result of 35 years of unwise economic policy - that it is actually one of the most far-sighted states in the Union????

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On 2/11/09 at 4:51 PM, rmadore wrote:         Repeated separate thumbs down will cause comment to be hidden

I am very disappointed in our legislature. It's coming to the point where we should begin a tax revolt only then will our legislature understand that they need to take their hands out of our pockets. They will go around and base your taxes on what you make. The problem with this kind of thinking is we have other bills to pay for like college, car, house etc. If we just tell the state to shove it then they'll understand. Politicians, can't trust them, can't live with them so let's get rid of them. When this state begins to increase taxes only on those they think make more money then I'm leaving and will live some where else. I'll come back and live in Maine when I need it's programs to live in my retirement years. What a joke the legislatures are!!!!

Time to start votinr for another party. Tired of the same old bull!!!!

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On 2/12/09 at 6:46 PM, shockin wrote:         Repeated separate thumbs down will cause comment to be hidden

didn't the governor run twice on the proposal to lower taxes. why doesn't anyone call him out on this.he had no intention of lowering taxes just getting elected. I want to see just one time some elected official stand up and say what is on their mind. quit trying to be bipartisan. there is no middle ground its either wrong or right. get goverment out of health care they have already screwed up our social security.

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On 2/14/09 at 12:25 AM, flying61 wrote:         Repeated separate thumbs down will cause comment to be hidden

40 years of Democrats in power in Maine---we are one of the highest taxed states in the Union!!--When are the people of this state going to wake up and vote all of thes tax and spend liberals out of office?!! Oh, and if you haven't heard -- Obama is going to raise the taxes on aspirin by 400%, they are white and they work!!

A revolution is not far in our future.

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