Monday, April 30, 2007
About the Author
Kay Rand is managing director of Bernstein Shur Government Solutions and former chief of staff to Gov. Angus King.
The Tax Foundation just released its annual study of state and local tax burdens. Unfortunately, Maine is in second-highest place, just behind Vermont.
This survey always results in headlines and a new round of commentary on taxes and out-of-control spending in Augusta.
There is no question that Maine's taxes are too high and need to be brought down, but there is additional information that might help us to better understand Maine's situation so that we can make better choices about solutions.
The first question is, what is "tax burden" and what does it mean that ours is high? ĘDoes it mean that our tax rates are higher? ĘDoes it mean that Maine's state and local governments spend more per person than other states? And who pays what share of these high taxes?
These and other questions were the topic of a recent tax forum hosted by the law firm Bernstein Shur at the University of Southern Maine's Abromson Center. ĘSeveral hundred business and civic leaders gathered to go beyond the headlines and gain a deeper understanding of this issue.
Here are some of the key points from the event:
1. Maine government spending per person is 12th in the country and fifth lowest out of the six New England states. High, but not the first place the headlines might make you think.
2. The "tax burden" to which the reports refer is a percentage figure that comes from adding up all taxes collected by state and local governments and then dividing that number by the total income of all Mainers. But not the income of "out-of-staters." In other words, Martha Stewart's taxes count but not her income. So whenever you hear "tax burden," remember that there are two parts to the calculation -- taxes collected and personal income. Each is equally important in determining the result.
3. To follow up on this, if Maine's per capita income were as high as it is in Massachusetts, our tax burden would rank 42nd instead of second. This means that we have to focus on building incomes just as much as cutting taxes, and that one of our best hopes for long-term tax relief is wise economic investing. The irony is that economic investments like education and research and development often increase spending, at least temporarily.
4. Almost 10 percent of Maine's tax burden is borne by out-of-staters, mostly through the sales tax and local property taxes. This is one of the highest rates in the country. It is believed that Maine exports more of its tax burden than most states because of the high percentage of real estate that is owned by non-residents.
The only other state with a comparable analysis, Minnesota, exports 2.3 percent of its tax burden, only one-quarter of our amount.
The result of this shift, according to Maine Revenue Services estimates, is that the tax burden actually borne by Maine residents is 11.8 percent of personal income, and not the 14 percent reported in the Tax Foundation report, dropping us from second in the rankings to about 10th.
5. Unlike Maine, many states have chosen to significantly increase user fees rather than taxes to pay for governmental services. If we charged user fees for government-provided services at the average rate of other states, our tax burden would fall at least another 10 places among the 50 states.
While shifting from taxes to fees may be politically adroit (your state looks better on the tax burden rating), it is regressive in nature because user fees fall more heavily on lower-income people.
6. Tax burden varies with fluctuations in the economy, often going up when the economy is booming because government collects more revenue. Maine's sales tax rate was reduced from 6 percent to 5 percent over the last decade, but this reduction did not lighten our tax burden because of an increase in overall sales.
7. When it comes to business taxes, Maine is competitive. The corporate income tax, for example, is substantially lower in Maine than it is in New Hampshire.
This isn't an elaborate excuse for high taxes. Everyone agrees we have to bring them down. But these facts do give us some needed perspective and perhaps can help us approach this debate with a better understanding of what we're up against -- and how we can fix it.
- Special to the Press HeraldWe have to focus on building incomes just as much as cutting taxes.
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Oh-oh, the TABOR apologists of last fall aren't gonna like this one bit...report abuse
You won't find much room to cut Medicaid, ME already has one of the lowest Medicaid reimbursement rates, couple that with the computer system SNAFU and any cuts to maincare/medicaid will result in physicians refusing to see many medicaid patients. In other words, if it's cut any further, physicians will lose money every time they see medicaid patients, and when 25% of the state is on medicaid, that just won't work. The only option would be to reduce eligibility, but that will increase the ranks of the uninsured. Maybe it would be better to put some of the people near the top of medicaid eligibility into Dirigo, where they at least share some fo the cost of their coverage.report abuse
The point about the fees being set up as a decoy, instead of taxes is a good one, and one that has been warmly embraced by New Hampshire. There are fees galore in that state, as well as very very high local property taxes for those who happen to live in towns that are not blessed with "property rich" boundaries such as ocean and lakefront properties. Land locked towns without any business or other tax producing entities equals shell shocked when it comes to the local property tax....I know of one town where it is $42 per thousand, and mid level houses in that town go for at least $200,000.
Maine does very well in quality of life issues as compared to NH. People think the lack of a broad based tax is a good thing,but it is only so for those who are in the top 10% of wealth bracket. The rest of the poor schlubs are paying property taxes that are way over representative in ratio to their incomes. But the numbers don't show up that way, again, with a high percentage of wealthy incomes becoming a factor in the math, you can't get to the truth about the real true tax burden in NH.
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