It’s another radical tax and budget plan like the two TABOR plans Maine voters rejected soundly

BY RAMONA DU HOUX

March 16, 2012

LD 849, “An Act to Provide Tax Relief for Maine Citizens by Reducing Income Taxes,” proposes two significant changes to Maine’s tax system. The Maine Senate gave initial approval to LD 849 on March 15 but further votes are required in both the Senate and the House.

The proposal:
1. ratchets down state revenues by gradually lowering Maine’s income tax rates to a flat 4%, cutting the state’s income tax revenues almost in half over time. Approximately 75% of the benefit of this proposal goes to the top 20% of taxpayers.

2. raids 40 perscent of all General Fund revenues that exceed budgeted amounts each year, as well as any revenues over the spending limit established by LD 1 in 2005. In effect, this cuts tens of millions per year which would otherwise go to the Budget Stabilization or “rainy day” Fund, General Fund Operating Capital, Capital Construction and Improvements Reserve, Retirement Allowance Fund, and Retiree Health Insurance Fund.

There are several issues with these proposed changes. This kind of approach to budgeting has been rejected by Maine people three times, in the two TABOR and Palesky Tax Cap referenda.

LD 849 jeopardizes state funding for education, health, and other public services and will result in an increased shift to property taxes. Maintaining critical investments in education, health care, and other public services will fall to property taxes or be shifted to service providers, businesses, and individual consumers.

LD 849 is fiscally irresponsible, cutting income tax revenue almost in half over time. This proposal puts Maine’s credit rating at risk by reducing contributions to existing stabilization and reserve funds. It also weakens our capacity to maintain long-term investments and to withstand future economic downturns in a manner that is fiscally responsible.

LD 849 overreaches and binds the hands of future Legislatures. Historically, those officials elected by the people each year determine how revenues are allocated. This proposal circumvents that democratic process. The ratcheting effect puts budget decisions on auto-pilot and ensures that future Legislatures will face ever-greater budget shortfalls.

LD 849 is a wolf in sheep’s clothing. While providing tax relief to Maine people is a worthy endeavor, LD 849 does so in ways that are inconsistent with efforts to preserve a progressive tax structure and compromise our capacity to withstand future financial challenges and to budget responsibly. Approximately 75% of the benefits go to the top 20% of taxpayers.

A better approach would be to make sure the state is living up to its financial obligations to fund K-12 education as called for by Maine people at the ballot in 2005, and restore targeted property tax relief. We should also make sure that we are not compromising our ability to meet future financial obligations and that we maintain a strong credit rating.