Ethan: As two folks who embody the importance of bipartisanship, let’s have a discussion about the Maine Legislature’s “Gang of 11” plan to reform our tax code? The gang is made up of five Republicans, five Democrats and one independent.
Phil: So far, so good. They must be reading our columns.
Ethan: In a nutshell, the plan significantly cuts income taxes to 4 percent and offers a little property tax relief through an expanded homestead exemption. It pays for this through $700 million worth of raising and broadening the sales tax across the board. In true bipartisan form, it gores everyone’s ox a little bit but has some tantalizing treats for everyone, too. I certainly have lots of thoughts, not the least of which will be whether the changes ultimately make our code more progressive, but what are your initial thoughts?
Phil: What you are leaving out is that it also raises about $160 million more than Gov. Paul LePage’s proposed budget — to replace the cut to municipal revenue sharing. Or, as some of us like to say, it feeds the spending addiction of the Augusta monster.
Ethan: True, it is not quite “revenue neutral” in terms of cutting as many taxes at it raises.
Phil: Here are my thoughts. In no particular order, a fair tax system won’t be simple, and a simple tax system won’t seem fair. The authors expressly acknowledge the goal is to tax visitors more, even though Maine’s harsh taxes chased so many Mainers out of here in the first place, including former politicians who voted for the tax increases they now avoid. (See former Democratic Gov. Ken Curtis.) They are proposing taxing car repairs, basic necessities like food and heating and advisory services, including legal and accounting fees. If we’re not careful, we might just manage to do to tourism what we did to the paper industry.
Ethan: I think wiping out all our sales tax loopholes is a great idea. They are mostly just legislative prizes given to powerful special interests.
Phil: What you call “loopholes” is established law by the Legislature, signed by the governor. Also known as legal tax exemptions.
Ethan: What I call loopholes is a nice way of saying “corporate welfare” doled out by weak legislators.
Phil: I will give them some credit for slashing the income tax so dramatically. Although, I will say I am a little confused. Haven’t Democrats spent the last decade slamming former President George W. Bush, LePage and every other Republican for cutting the income tax?
Ethan: Indeed. Remember Steve Forbes and the flat tax we Democrats hammered? This plan is essentially modeled the same way.
Phil: Ah, the irony.
Ethan: Sen. Dick Woodbury, I-Yarmouth, one of the architects of the plan, and I have had a longstanding difference on this issue. He is a believer, like Republicans, in a trickle-down tax code. That is, reduce the top income tax rate, and the wealthy job creators will come to Maine (as you say, very “George Bush”). Unfortunately, evidence just doesn’t support this theory. Much better to take the revenue generated from the sales tax increase and get it directly back into the pockets of middle-income families through property tax relief and/or invest in education, roads and the economy.
Phil: Using your logic, we should be celebrating all of the jobs and new business start-ups created by low- and middle-income earners as a model for the rest of America to follow.
Ethan: Indeed. Sadly, at initial glance I am just not seeing these values reflected. I will reserve judgment until I get more of the analysis, but this plan appears heavily weighted toward the trickle-down theory and not the fairness theory.
Phil: Another thought that jumped up for me was why do politicians seem to require taxpayers to swallow their dignity to fill out a form, so a bureaucrat can determine if you are poor enough to get some of your own money back?
Ethan: Actually, this tax package makes a much needed change that you will like. It gets rid of the circuit breaker program, which requires people to fill out a form declaring how poor they are, and incorporates a fully refundable credit onto the income tax form.
Phil: Ah, me of so little faith. I recall the tolls would be removed once the turnpike was paid for. How’d that work out? Circuit Breaker eligibility has morphed so many times, I don’t recognize who gets it anymore. And more recently we’ve seen changes in the original homestead exemption, such that it is meaningless today. When is Augusta — and, for that matter, Washington — going to realize that simply controlling spending is the path to prosperity that we both seek?
Ethan: Probably at the same time we realize cutting taxes on the wealthy is not an economic growth strategy.
Phil: Heck, if we could just get you to stop punishing them for success, that would be a step in the right direction. Any final thoughts on the plan?
Ethan: As I said earlier, I will reserve judgment until I can see the clear impact on who gets the relief and whether our tax code is more or less progressive at the end of the day. However, I am concerned that the plan focuses so much on reducing the income tax, which is the most progressive and least out-of-balance part of our tax code. You?
Phil: Just one. Until we bring spending under control at all levels of government, we will never see the end of creative tax reform plans being written by “gangs.”