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From Governing’s
Among the properties whose value soared were those owned by the fishermen and other long-time coastal residents of modest means, whose recent hard times have made it difficult to pay the rising property tax burden. In 1998, the legislature passed a $7,000 homestead exemption, but that wasn’t enough to satisfy many of those affected. “I think the property tax revolt is in full force right now,” says former House Speaker Michael Saxl. Although property taxes are collected at the local level, the revolt has ramifications for all state taxes. At least three groups are organizing and collecting signatures to place some form of property tax referendum on next November’s ballot. One, sponsored by the Maine Municipal Association, would increase the state’s share of K-12 education to 55 percent — it currently stands at 43 percent — and reduce property tax levies by about 15 percent, leaving it up to the legislature to find the additional revenues.
The legislature has the option of either adopting a certified referendum as is or forwarding it on to voters. Christopher Lockwood, the municipal association’s executive director, says he’s optimistic the legislature will enact its measure and get on with the business of finding new revenues elsewhere. The alternative to legislative action of some kind could be unpleasant. “If the legislature doesn’t do something, it’s going to be taken out of our hands and it will be in a form that’s much less palatable,” says state Senator Jill Goldthwait, past chair of the Joint Appropriations Committee. Plenty of options do exist. For example, $1.7 billion of the taxable base is excluded from the state’s sales tax, substantially more than is actually collected. As a result, 23 percent of sales tax revenue — 8 percent of the entire state budget — comes from automobiles, so the state is overly dependent on car sales. Luckily, “0% financing” helped move quite a few cars off the lot last year. Even though this allowed Maine to avoid a crisis in falling sales tax receipts, it didn’t escape a hemorrhage in personal income tax revenues. When investors took a bath in the bear market last year, so did the state treasury. Capital gains receipts were down 69 percent from 2001. That drop contributed to gaping budget holes of $92.5 million in 2002 and $192 million for 2003. In response to the dismal figures, the state raised cigarette taxes by 26 cents, drained the rainy day fund and cut spending. The next budget session presents even greater challenges, since government will need to fill nearly a $1 billion hole in the $6 billion biennial general fund budget. Although there was general consensus over most of the short-term solutions, Governor Angus King made a controversial move before leaving office in January: He suspended payments in the state’s business equipment tax reimbursement program. This saved Maine about $48.5 million this year but raised the ire of companies that have grown accustomed to the cushy tax break since it was implemented in 1995. Another quirk in Maine’s system results in two-thirds of its employers — L.L. Bean is one — filing as unincorporated businesses. That means they pay personal — not corporate — income taxes, and it leaves the burden of the corporate income tax on national and local giants such as Wal-Mart and Bath Iron Works. But the word “burden” may be inaccurate. Like most states, Maine has discovered that these giants are adept at tax planning. As a result, the corporate income tax now raises less revenue in Maine than the cigarette tax. Some lawmakers appear ready to confront the idea that Maine needs corporate tax reform on its agenda. “Right now,” says state Representative Peter Mills, “they pay us what they want to pay us.” Adjustments to the personal income tax brackets would also be a good idea. On paper, the tax looks highly progressive, with rates climbing from 2 percent to 8.5 percent of adjusted gross income. But single taxpayers cross the threshold for the highest rate at just $16,700 in annual income. The tax is less progressive than it is simply high, particularly compared with Massachusetts, which has a flat 5.3 percent rate, and neighboring New Hampshire, which has no broad income tax at all. Despite numerous breaks and loopholes, Maine’s overall tax burden — including both state and local taxes — is one of the highest in the country. Measured by percentage of personal income, only New York squeezes its citizens tighter. One positive thing you can say is that the state understands its problem. A biennial tax incidence report, written by the Department of Revenue Services, provides voluminous data documenting the impact of taxes on all segments of the population. Maine is among a handful of states that publishes such a document; few even have the capability to adequately assess the effects of new tax legislation. “Hopefully, any tax policy changes that do occur are done in the bright light of day,” says Tony Neves, the department’s executive director. “There shouldn’t be any unintended consequences of tax law.” Copyright © 2003, Congressional Quarterly, Inc. Reproduction in any form without the written permission of the publisher is prohibited. Governing, City & State and Governing.com are registered trademarks of Congressional Quarterly, Inc. |
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aine is up against a painful fiscal dilemma brought on by both the beauty of its landscape and the fragility of its fishing industry. The economic boom of the late 1990s brought thousands of vacation-home buyers to the state’s coastal towns, driving up housing prices dramatically.