Maine Heritage Policy Center has released a severely flawed analysis on tax

By Ramona du Houx - December 20th, 2011 

“The solution to the governor’s new budget gap is not to cut child care, Head Start, Drugs for the Elderly, or health coverage for 65,000 Mainers, but to call off the future tax cuts for the top one percent of Mainers,” said Rep. Seth Berry, of the Taxation Committee.

The lawmaker agrees that when setting fair tax rates necessary to benefit the economy and welfare of citizens, blind assumptions should be not part of the equation. But the Maine Heritage Policy Center (MHPC) bases its recent “report” to raise taxes on an ideological point of view and assumptions — not facts.

“The recent MHPC document was not a study but a partisan press release using the same methods that justified the disastrous 2001 Bush tax cuts. If the MHPC agrees with Democrats that jobs should be the priority, they should be working today to pass the bipartisan, two-month payroll tax cut extension in Congress,” said Rep. Berry. “Instead, they are again promoting new, trickle-down tax giveaways to the very wealthiest on the backs of young children, veterans, the disabled, and senior citizens.”

Governor John Baldacci established Pine Tree Zones to give areas the tools they need to help businesses succeed, so Maine’s economy could grow. These tax breaks helped employ over five thousand people and grew 312 companies.

President Bill Clinton’s administration helped to create over 22 million jobs; George Bush’s — only 1.2 million. Clinton asked the wealthiest Americans to pay what they had been paying in taxes during the Reagan years. Clinton took those funds and invested them into programs that grew the economy — like Enterprise Zones, research and development, education, and health care. Bush gave a tax cut to the wealthy, while never establishing a economic model to pay for it and for two wars. Bush put America into huge debt with his “trickle down” economic policies.

A realistic economic model should have been used last spring by Gov. LePage’s administration when putting together the state’s biennial budget. That budget, which has led to the state’s shortfall, was based on ideological goals, not on the economic reality of what is best for the citizens of Maine, to help grow the economy and safeguard their well being. Democrats last year presented an amendment to the state budget that would have reduced taxes for 16,000 more Maine families, while leaving more than enough in state coffers to cover the governor’s new budget gap.

The recent insistence by LePage to cut back on MaineCare to make up for the short fall is intrinsically flawed, because forcing people to be unhealthy, because they will have no health insurance, has been proven to hurt economies around the globe. Gov. Baldacci established the Dirigo Health Care system and Clinton- the children’s health care program. President Obama fought to establish the Affordable Care Act. They understood that investing in people moves the economy forward. Helping citizens to become healthy helps to create a vibrant workforce.

The Congressional Budget Office and major bond rating agencies recognize that tax reductions for the wealthy tend to be invested internationally, while tax reductions for the middle class tend to be spent locally, creating more local jobs. MPHC’s analysis relies on a single average for all taxpayers, assuming benefits to the wealthy will trickle down.

A tax increase or a tax cut depends on many economic questions. Using methods that have worked in the recent past obviously takes away the risk. Investing in people, cluster economies, and research and development are proven economic methods. Trickle-down economics has been proven to hurt the economy. President Obama’s payroll tax break invests in people.

“The Maine Heritage Policy Center has released a severely flawed analysis. It assumes a new tax is necessary to cover the projected ‘shortfall’ rather than other alternatives, such as delaying or canceling the implementation of recently enacted tax cuts. It fails to specify the type of tax considered. It makes bold assumptions about the long-term implications of a new tax and relies on those assumptions to arrive at a significantly inflated jobs number. Credible analysis by nationally recognized economists such as Mark Zandi (former adviser to John McCain) and by Douglas Elmendorf, director of the Congressional Budget Office, raise serious questions about the assumptions and methodology used by MHPC,” said the Maine Center for Economic Policy (MECEP) in response to the MHPC report.

Even before the new tax reductions take effect, Maine Revenue Services notes that the lowest overall rate for total state and local taxes is currently paid by the wealthiest one percent, while the highest overall rate is paid by the poorest 20 percent.

To accurately estimate job loss or gain from the 2013 tax cuts, MPHC would have needed to break down the actual benefits to each income group. These include:
· $2,810 to the wealthiest 1 percent (over $360K AGI)
· $123 to the middle 20 percent
· $7 to the bottom 20 percent (incl. min. wage earners)

Perhaps taxing the most wealthy in Maine, the one percent, could be a solution, but taxing the middle class will hurt the economy.