Maine’s tax cut cost shifting is increasing property taxes

LePage policies lead to $756 structural budget gap

BY RAMONA DU HOUX

October 16th, 2012 

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Bob Cushing, a former state employee who lives in Augusta, used to be proud that he never got involved in politics. Working for the King and Baldacci administrations, he never saw any reason to and never had any complaints. All that’s changed.

“My property taxes went up by a $1,000,” said Cushing. “I improved my roof, but most of the increase is because the school needs the money. I never get involved in politics, but this — it gets to me.”

The Washington-based conservative Tax Foundation report ranked Maine 30th for its business tax climate but failed to consider the LePage administration cost shifting policies that have made property taxes increase impacting businesses and homeowners.

In states across the country where Republican governors have cut taxes for the wealthy, they have to deal with less money to pay the bills. Maine is no exception, and much of the cost shifting that has occurred here because of tax cuts made by the Republican-controlled Legislature have hit school budgets across the state, forcing towns to raise property taxes.

The structural gap assumes that the state will meet its mandated obligation to fund public education at 55 percent (currently it’s at 45 percent), that it will restore the portion of revenue it shares with municipalities to the legally required 5 percent of sales- and income-tax collections, and will continue spending on Medicaid, which the LePage administration has targeted as an area to make deeper cuts.

The assumptions “illustrate the need for further structural changes in the way in which general purpose aid (for schools), MaineCare (Medicaid) for our general population, and revenue-sharing are calculated and funded in the next biennial budget,” said Finance Commissioner Sawin Millett, when he announced that the State has a $756 structural budget gap.

Translation: The state most likely will not increase public education funding to 55 percent, will not restore revenue-sharing with municipalities, and most likely will cut MaineCare further.

The structural changes that have occurred because of LePage policies have resulted in less state funding for schools, health care, and towns. As a result, property tax and insurance costs have increased.

“Of the fraction of the income tax changes actually paid for, more than two-thirds was shifted away from funding for Maine towns and property tax refunds. Though it has only just begun, the “largest tax shift in Maine history” has already cost thousands of Maine homeowners and renters more than $400 apiece. Maine’s families, schools and towns can expect a far greater pinch, as the future payments come due,” said Rep. Seth Berry of Bowdoinham, who is the lead Democrat on the Taxation Committee.

The Maine Center for Economic Policy (MECEP) released an analysis of the tax cuts called: The Consequences of Maine’s Income Tax Cuts: Recent Tax Cuts Increase Costs for Municipalities, the Poor, and the Middle Class based on data from Maine Revenue Services and the legislature’s Office of Fiscal and Program Review.

“To pay for tax cuts that transfer tens of millions of dollars to the richest Mainers, the governor and the legislature shifted costs to local communities, forcing them to raise property taxes to avoid damaging cuts to education, road maintenance, fire and police protection, and other basic services,” said MECEP Executive Director Garrett Martin “This will actually increase the combined state and local tax bill for 270,000 low- and middle-income families- the 40 percent of Maine’s taxpayers who can least afford it.”

What’s more alarming is that the Republican-controlled Legislature enacted more than 50 tax-related bills, and so far less than a tenth of the total long-term tax cuts have been paid for.

“The rest, like a mortgage paid by credit card, has been left to future leaders and taxpayers,” said Berry. “Maine’s middle class and working families are in for a world of hurt, while a select few are in for a major new tax windfall.”

The tax cuts have also compounded the structural gap, which means state spending will exceed revenue by $756 million over the course of the next two-year budget cycle.

“The tax cuts passed in the last Legislature are compounding the deficit,” said Rep. Peggy Rotundo, the lead Democrat on the Legislature’s Budget Committee. “These are tax cuts that mostly benefit the wealthy at the expense of health for the elderly, the disabled, and the most vulnerable.”

Paul Krugman, a Noble Prize winning economist, has stated that if you want to grow the middle class, increase jobs and surpluses, you have to have fair, affordable tax policies. Krugman often points to President Bill Clinton’s tax policies as a model.

The federal government’s deficit ballooned after President George W. Bush in 2001 enacted huge tax cuts for one percent of Americans. States have to balance budgets every year, so LePage’s tax cuts are beginning to hurt middleclass families now, and the situation is projected to get worse.

“According to Maine Revenue Services, when looking at all state and local taxes (income tax, sales tax, property tax, etc.), a single, minimum-wage parent making $12,000 a year pays 17 cents on each dollar, while someone making more than $350,000 a year pays 10 cents on each dollar,” said Berry.

In other words, the single parent pays nearly twice the overall state and local tax rate, compared to those making more than $350,000.

“Due to the many tax measures passed by the 125th Legislature by the majority, the few making $350,000 and up will receive an income tax cut of $3,000 next year. In future years, that windfall will increase to more than $24,000 per year,” said Berry. “In contrast, the single parent and tens of thousands of similar Maine households will receive an annual income tax cut of $8 a year, growing in future years to less than $9. At the same time, they will receive a property tax increase starting in the hundreds.”

Rep. Berry had alternative tax policies that were summarily rejected by Republicans.

“Every House Republican present voted against my compromise plan for the biennial budget, which was to give tax cuts to 16,000 more Maine families overall, while reducing the top-earner tax cuts. The compromise involved no new taxes or costs and would have helped every Mainer by restoring funding to towns and to property tax and rent reductions,” said Berry.

Now it appears that LePage is using his own tax polices to try to cut back on programs citizens need and has created this “structural gap” to point to as the reason programs must be cut.