On June 8, vote no on Question 1 and support tax reform. In recent months you may have heard much rhetoric regarding the evils of the recent tax reform law that is on hold pending the referendum question (people’s veto) to overturn the law.
During the past two-plus years, as members of the Portland Regional Chamber’s Public Policy/Legislative Affairs Committee, we have had an opportunity to be participants in the tax reform debate. Nevertheless, these opinions are ours and not that of any organization.
To put the tax reform law into context, around 2003 the Portland Regional Chamber embraced a goal of tax reform with the goal of creating a better balance between income, sales, and property taxes. In the existing balance, state income taxes and local property taxes comprise a large percentage of the revenue pie, while sales tax revenues contribute significantly less. The state government has direct jurisdiction with the income and sales taxes, but only an indirect influence on local property taxes. The overall concept is that with a sufficient revenue stream, government can be both efficient and provide local communities with more revenues which may be applied to property tax relief.
During 2006, the Brookings Institution was commissioned to study the state of our state. Everything from how we saw ourselves to how we think others view us and how we govern and operate our state. Brookings traveled the state, interviewing and discussing various topics and issues with many of you in various settings. In November 2006, they released their findings in a report entitled Charting Maine’s Future. Among the many recommendations was to address the imbalance inherent in our tax structure. They recommended lowering the income tax rate both to encourage more entrepreneurs to come to Maine and to remove the perception of Maine as a high-tax state. To accomplish this, they recommended expanding the sales tax to include products and/or services more aligned with other states. Currently, our sales tax exempts all but 24 categories of items, much narrower than the region and the nation as a whole. The items not exempt focus primarily on auto sales, building supplies and major appliances. During good times, sales tax revenues soar while during slow times, just the reverse occurs. This volatility results in erratic state revenues and uncertainty with local revenue sharing and government programs, including economic development and R&D efforts.
Shortly after the release of the Brookings Report, a legislative committee was formed called the Joint Select Committee on Maine’s Future Prosperity. It was a bipartisan committee established to consider the findings of the Brookings Report. One of the recommendations made by this committee was to restructure Maine’s tax system.
We initially became aware of the effort to restructure the income and sales taxes a couple of years ago when two representatives of the Select Committee, state Rep. John Piotti (D) and state Sen. Jon Courtney (R), presented their proposal to the chamber’s public policy committee. This effort, which closely mirrored the chamber’s goals of state tax reform, eventually evolved primarily into a democratic legislative initiative championed by Piotti and legislative supporters. Piotti and colleagues traveled the state presenting their proposal before numerous business and citizen groups, listening to their comments, refining the proposal, and then revisiting these groups with revised proposals. The process recurred over and over during the past two years, resulting in a number of revisions based on input from Mainers. Eventually a bill, backed by numerous chambers of commerce and economists throughout the state was presented to the Legislature. Before final passage into law, the governor weighed in, eliminating some of the newly taxed categories. While these last-minute changes have become somewhat controversial, we’re hopeful that these additional exemptions will be addressed by the Legislature in the near future.
Despite its shortcomings, we feel that this tax reform law is a step in the right direction. It was designed to be “tax reform” not “tax reduction,” although there is some of that in the law. The only way to reduce the income tax rate significantly is to expand the sales tax categories. These expanded categories are not outrageous. They are in line with, if not lower than, our neighboring states. This law isn’t perfect and its supporters acknowledge that. It can, and most likely will be amended as we see how it impacts certain segments of our state. Its goal is to reduce the top income tax rate to make us more attractive to entrepreneurs and retirees. It also reduces the volatility of our very narrow sales tax base, resulting in a more predictable revenue stream which will allow our government to operate more efficiently. A more efficient government will, hopefully, provide local communities with the revenue sharing funds necessary to support property tax relief.
In summary, because of the intensive collaboration that has gone into developing the tax reform law and because of the potentially positive economic impact on both business and Maine citizens, we urge you to vote no on Question 1.
The authors, Roger Beeley, Jim Elkins, Bob Nadeau and Kevin Freeman, all of Scarborough, are members of the Portland Regional Chamber’s Public Policy/Legislative Affairs Committee.