House Majority Leader John Piotti has a helpful analogy to think about the twin concepts of tax relief and tax reform. He says they are like diet and exercise.
How many calories you take in and how many you burn are very important to your health. But they are not the same thing and have to be considered individually.
The distinction comes up in relation to the tax reform bill signed Friday by Gov. Baldacci. While the new law does not lower the amount of taxes collected by the state, it does address how those taxes are collected. That might not address the concerns of people who feel the state spends too much, but it does the important task of distributing the tax burden more fairly. While not a perfect reform, it is a definite improvement.
If you begin with the presumption that the state has to tax something, the next question is what? In Maine, we tax income and sales, and both sides of the equation are improved by the new law.
The top rate for wage earners who make less than $250,000 a year drops from 8.5 percent to 6.5 percent. Those who make more than $250,000 will pay a slightly higher 6.85 percent on income in excess of that amount.
For virtually all Maine wage earners, that 2 percent drop will mean more money in their paychecks. It will probably be the only raise that many folks will get this year.
To keep revenues level, the state will now broaden the sales tax to services that have been tax exempt. This means car repairs and some entertainment would now be taxed at 5 percent. The meals and lodging tax will increase from 7 percent to 8.5 percent. Because much of that tax would be paid by visitors from away, the change has been billed as a form of tax relief for Maine residents.
But even if the tax isn't exported, it still makes sense to broaden the sales tax to avoid the boom-and-bust roller-coaster ride that comes from relying too heavily on new cars and building supplies for sales-tax revenues.
The new law will not satisfy those who say the state spends too much. Anyone who thinks that Maine government should go on a diet will have the opportunity to impose one by voting for the "Taxpayer Bill of Rights" spending reform on the November ballot.
But when it comes to determining where the taxes will come from, the exercise program signed by the governor is a good start.
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