In recent weeks, lawmakers have cut state spending by $500 million and lowered the state’s income tax rate, both longtime goals of business advocates. So what has the response been? Complaints from the Republican party and some businesses that the tax reform legislation passed late last week is the wrong fix at the wrong time. The state GOP is working to organize a repeal.
Instead of trying to undo this historic work on taxes and spending, this legislative session should be remembered for its historic successes in the face of extreme financial difficulties. The 124th Legislature was marked by unprecedented cooperation from both parties in writing a budget that, for the first time in memory, decreased state spending. Lawmakers passed important legislation updating the state’s energy policy and made Maine a leader in civil rights by enacting a law to allow gay marriage.
And, after years of talk and study, lawmakers passed legislation to lower the state’s top income tax rate and broaden the sales tax base, two long overdue changes that will save Maine families and businesses money while bringing more predictability to state revenues.
Only one Republican, Sen. Peter Mills, voted for the revised tax reform measure. Republicans instead backed legislation that would use surplus state revenues to reduce the income tax rate. With budget surpluses likely years away, due to the national recession, this amounts to forcing Maine businesses and families to keep waiting for lower tax rates.
Rather than wait, the House and Senate passed LD 1495 late Thursday. It extends the state’s sales tax to new goods and services and raises the meals and lodging tax. But, most important, it drops the top income tax rate from 8.5 percent to 6.5 percent for most taxpayers. Annual income over $250,000 will be taxed at 6.85 percent.
As important as the actual decrease is the message it sends. The Maine State Chamber of Commerce and other groups have long decried Maine’s tax burden as the highest in the nation. Although this was never true (it turns out that the Tax Foundation miscalculated Maine’s burden before correcting it last year), Maine’s income tax rate has long been too high.
At the same time, state spending needed to brought in line with revenues. Gov. Baldacci has addressed this on several fronts, from efforts to shrink government bureaucracy to reducing state employment, culminating in a budget for the next two years that cuts spending by more than $500 million. This work needs to continue, especially as federal stimulus money was used in many areas to balance the budget. That money is short-term, so additional changes need to be made to Maine’s government and the services it provides to further lower spending.
The need for such work, however, does not negate the importance of tax reform that meets the twin goals of lowering income taxes and creating a more stable tax base. Undoing the tax changes will shortchange Maine families and businesses.