State rep: Give Maine tax reform a chance

In 1935, a national newspaper reported that Maine was working on “legislation embracing almost every conceivable angle of tax reform.” Maine missed that chance to fix its already outdated tax code. In 1995, Gov. Angus King proclaimed tax reform to be "exactly the right piece of work, coming at the right time.'' That effort also failed. In 2004, tax reform was back on the editorial pages with this observation: “there’s a new urgency in Augusta surrounding an old debate.” Urgency, perhaps, but action? No. Not then.

Finally, this year, after years of study and talk, the Maine legislature passed tax reform legislation. On June 12, 2009, Gov. Baldacci signed LD 1495 into law. As one member of the state House of Representatives, I am proud to say I voted “Yay” and supported the bill. The major credit for this achievement, however, goes to others who worked, sometimes for years, to get this right.

What is meant here by “tax reform” is that LD 1495 changes the mix of state taxes, the sources of revenue for state government. It decreases Maine income taxes for nearly everyone. For example, for those making less than $250,000 the income tax drops from 8.5 percent to 6.5 percent. As a result, Maine's income tax rate will fall from seventh highest in the nation to 20th highest among the states. To achieve this, the new law increases the meals and lodging tax from 7 percent to 8.5 percent and broadens the reach of Maine's 5 percent sales tax to additional goods and services. Overall, the law does not raise or lower the amount of tax revenue collected — but it will still save Mainers real money. LD1495 reduces the taxes paid by Maine residents by $57 million. You see, full-time Maine residents pay 100 percent of the income tax while the other taxes are also paid by visitors and part-time residents of the state.

The Wall Street Journal called the measure: “The Maine Miracle” and crowed: “No state has improved its economic attractiveness more than Maine.” To close observers, it may seem like Maine has gone through the looking glass on tax issues. For one, the simple fact that we actually passed tax reform startles some; the other surprising fact is that one major political party largely stepped aside. You see, every Republican legislator but Senator Peter Mills of Skowhegan voted against the bill that is now being praised by the reliably conservative Wall Street Journal. As a Democrat, I usually do not orient my compass with that paper, but I certainly do not mind the praise from unlikely quarters. In this instance, we agree that sometimes a change is simply good for the entire state.

In this instance, the tax reform improves the business climate of Maine, as noted by the Journal, the Tax Foundation and by local Chambers of Commerce, including those here the Portland, Bangor and Androscoggin regions. But for me it is also important that the reform is progressive. That is, the new tax rate helps taxpayers lower on the income scale. One commonly used measure of whether one or more taxes are progressive or regressive is the "Suits Index." This reform has been evaluated using this Index and the results show that it makes Maine’s taxes more progressive than it was before. To put it simply, while people of all incomes make out better under the new system than the old one, the benefits are slightly better for people who make less money.

But the opponents have dug in their heels. This summer they are collecting signatures on a petition for “a people’s veto” under the slogan "still fed up with taxes." Maine GOP Chairman Charlie Webster hopes they will get the 55,087 signatures to put the question on the ballot, and has actually admitted that they would prefer to delay getting the question on the ballot until June 2010 rather than this November. In truth, opponents do not need to actually win on the veto vote to hurt tax reform. Submitting the signatures will delay implementation. All Mainers who will save money under the new law — which is set to go into effect on Jan. 1, 2010 — will have the start of those savings delayed, and therefore some money will be lost forever even if the veto vote fails.

Many of the opponents mistakenly saw tax reform as a vehicle to reduce or eliminate taxes. The overall tax burden is determined by the budget and spending priorities. Incidentally, the $5.8 billion two-year budget adopted with bipartisan support this session was $500 million smaller than the previous budget. This was the first time in decades that the state budget decreased. Of course, the legislature was dealing with steeply declining revenues due to the current national economic crisis. But the state has also been shrinking programs and laying off employees for a few years now, and that is where spending is managed. The purpose of tax REFORM is to better manage and balance the way the state collects revenue. A well-designed system — like the one we passed — carries the extra benefit of actually reducing the tax burden on Maine people at the same time.

In short, Maine has been moving in a good direction on taxes; and for better or worse, state government is shrinking. The tax reform law deserves support. This is one instance where it will not be harmless to put a repeal question of the ballot. If you want to save some tax money, if you want more money left in the Maine economy, the message is simple: Don’t Sign the petition to veto tax reform. It will cost you. It will cost Maine. I would not bet on tax reform being enacted again soon.

Rep. Jon Hinck is a state representative for House Dist. 118, part of the City of Portland.

Sidebar: These are the key features of the LD 1495 tax reform bill:
• Reduces the top income tax rate from 8.5% to 6.5%
• Adds a surtax of 0.35% tax (to 6.85%) on taxable income above $250,000
• Broadens the sales tax to cover more goods and services, including movie tickets, limousine rides, and the labor on car repairs
• Raises the taxes on meals, hotel rooms, and rental cars
• Simplifies the Property Tax and Rent Refund Program (or “Circuit Breaker”) application and combines this form into the state tax forms
• Makes Maine’s Earned Income Tax Credit partially refundable