For three months, Gov. Paul LePage has driven the debate in Augusta and across the state with his proposal to overhaul Maine’s tax code.
Now, Democratic leaders in the Legislature have put forward something more than opposition: They’ve released a tax plan of their own that moves the entire conversation about tax reform in a promising direction.
The Democratic plan touches all three major taxes paid by Maine residents, but its core focus on reducing property taxes rather than the income tax — the tax that LePage is almost singularly focused on cutting ( in fact, eliminating) — is a welcome one.
While LePage says his package of changes is needed to make Maine more attractive to new residents and businesses, there’s little to back up his claims that tax changes will play such a pivotal role in rebooting the state’s economy or sparking population growth.
The basis of the Democrats’ plan, on the other hand, is at least empirical: A look at the taxes paid by Maine residents shows the property tax to be the most burdensome. In 2012, property taxes accounted for 38.7 percent of all taxes paid by Maine residents, compared with 23.5 percent for the individual income tax and 28.6 percent for the sales tax.
The tax burden in only five other states is more heavily weighted toward the property tax than it is in Maine. And the property tax is based on property value, which often has little connection with ability to pay.
The Democratic plan does three things the LePage budget doesn’t to keep property taxes in check: It raises municipal revenue sharing above current levels rather than eliminating it, though revenue sharing under the Democratic plan would still fall below the levels prescribed in a 1970s state law by half; it provides $20 million more than the LePage budget would in school aid, a move that has proven in the past to keep property taxes in check because school budgets generally account for the largest part of the property tax bill; and it doubles the homestead exemption for all resident homeowners, rather than double it for seniors only and eliminate it for everyone else. If the Democratic plan became law, the first $20,000 of property value for all resident homeowners would be exempt from the property tax.
The Democratic plan also takes from LePage’s a more robust property tax fairness credit for low-income homeowners.
Another major advantage to the Democratic plan is that, unlike the LePage plan, it leaves no budget hole in the future that will have to be filled with major cuts (LePage’s budget, after all, increases state spending) or new revenues. It also, wisely, avoids making any changes to the corporate income and estate taxes.
While the plan is significantly better than LePage’s, some elements could stand to change:
— The Democratic plan would keep the current sales tax rate, 5.5 percent, in place rather than let it drop back to 5 percent, as it would on July 1 under current state law. At the same time, it would keep the LePage plan’s robust and refundable sales tax fairness credit in place. We would prefer to see the sales tax rate fall back to 5 percent, virtually eliminating the need for the sales tax fairness credit, which is designed to offset higher sales taxes for low-income taxpayers. Democrats could, alternatively, reintroduce and expand the Earned Income Tax Credit, which is proven to help low-income people who work and their families.
— With regard to the $20 million in added school aid, we would like to see a portion of it directed to competitive grants that school districts could use to provide administrative services and training at the regional level, generating long-term savings. LePage’s budget proposes $5 million for that purpose. With the Democrats’ plan, we see an opportunity to make the investment more significant.
Democratic leaders have done the right — if difficult — thing in this debate by introducing a measurably better alternative to LePage’s tax plan. Most important, it gives legislative Republicans who haven’t embraced LePage’s tax plan a viable — and paid-for — alternative to accomplish long-needed reforms in Maine’s tax system.