When Gov. Paul LePage unveiled his budget proposal last week, it was reminiscent (but partly in a good way) of something said about a decade ago by an aide to President George W. Bush. This aide, widely reputed to be Karl Rove, told journalist Ron Suskind that reporters were part of “the reality-based community” but Bush and his administration were not because, “We create our own reality.”
The comment was mocked because Bush’s administration did not create its own reality on tax cuts that were supposed to create good jobs. Nor did the administration create a reality in which the Iraq war paid for itself, a burgeoning weapons-of mass-destruction program was found, and a unified Iraqi public greeted us as liberators.
But let’s get back to Maine.
The good news is that LePage’s budget acknowledged a reality that runs counter to ideological magic thinking that holds that taxes can be cut without putting a budget out of whack, just by finding waste and fraud and trimming some government programs.
At the same time, if this budget were enacted as written, there would be the new reality of a state government relying more on regressive sales taxes while repudiating its obligation to support local needs, as defined by local people.
Strikingly, the governor proposes new sources of funding with over 200 new taxes, even though his party ran against something similar when it opposed LD 1495, the 2009 law that cut income taxes and made up for the lost revenue with an expanded sales tax. While that law, like LePage’s plan, cut income taxes, it didn’t take money away from cities and towns like LePage already has and proposes to do even more.
Before the 2010 referendum that overwhelmingly overturned LD 1495, the conservative Maine Heritage Policy Center contended it was a “myth” that a “lower income tax is worth the price of a higher sales tax” because the “sales tax is a small business and jobs killer” that would force businesses to take on the work and expenses of collecting those taxes.
Now, under LePage’s plan, new sales taxes would apply when you have your driveway plowed, your hair cut, your rug cleaned, your car towed, your chimney cleaned and your trees removed.
And in two years, LePage would expropriate all municipal revenue sharing funds while flat-funding K-12 education. This would force cities and towns to make tough decisions about funding firefighters, police, plowing, education and other services. Property taxes would no doubt rise, although the governor offers another option, taxing large nonprofits.
Bangor could tax hospitals, already hurting because Medicaid wasn’t expanded, as well as Husson University. Towns without large nonprofits would be more reliant on residential property taxes.
The governor touts his plan as providing an aggregate tax cut, something he promised when running for re-election. But during the campaign LePage certainly never suggested increasing the sales tax.
Moreover, just because taxes go down overall, that doesn’t mean particular families come out ahead.
Consider two fifty-something homeowners in a rural town; they’ll see their homestead exemption vanish, while their income tax falls and property and sales taxes rise. Depending on their income, they might get a sales tax credit. Their elderly parents could lose help with prescriptions because LePage wants to cut the Drugs for the Elderly program.
What is certain is that LePage’s first income tax cut didn’t produce the economic growth and jobs promised, even as it led to higher property taxes.
One smart move was adding brackets so the top rate no longer starts at $20,900 in taxable income.
By 2019, income for a single filer between $50,001 and $175,000 will be taxed at 6.5 percent while income between $9,701 and $50,000 and income over $175,000 will be taxed at 5.75 percent. The Tax Foundation says that those in the middle “bubble bracket,” will get a tax cut, but the structure “will necessarily have some dampening effect on economic activity among earners within that bracket.”
Wealthy families would benefit as taxes on estates over $5.5 million would vanish in 2017, yet people who need the homestead exemption would lose it. That’s redistribution — upward.
And less than a month ago, LePage proposed a big tax cut for corporations, of $6 million-$10 million, on assets they purchased last year. It doesn’t incentivize investment because the companies made those buying decisions before the cut was announced.
As legislators and lobbyists engage with the governor on taxes and spending, members of the public need to weigh in on which reality they want.