There are many ways to calculate tax burden, and Maine’s isn’t always the highest
By Christopher St.John
Special to the Sun Journal

The frequently reported “fact” that Maine has the highest tax burden in the country has been a hindrance to achieving any real change in Maine’s tax system.

A quick examination of the data suggests that the common perception is actually fiction. Depending on how you measure, Maine is either 5th, 15th or even as low as 22nd among the states in total state and local tax collections.

The primary source of the “No. 1” perception is from Census Bureau estimates. Because the Census Bureau uses a sampling of cities and towns, not the actual collections numbers, they overestimate the total revenues collected in Maine by more than $172 million, compared to state data on actual collections. That finding alone brings us to a 5th-place tie with Hawaii and behind New York, Alaska, New Mexico and Wisconsin.

On top of that, Maine collects fewer fees and service charges than other states. Adjusting Census data for the overestimate of property tax collections brings Maine’s rating down to 15th among the states in “own source revenue,” which includes both taxes and fees.

Maine has a high percentage of out-of-state property owners who pay a whopping 20 percent of all property taxes – and 8 percent of sales taxes to boot. The taxes such nonresidents pay are counted in the total tax collections of the state, but their income is not counted in the personal income number with which the taxes are compared in common rankings.

Maine’s tax system is less regressive compared to other states. While low and moderate income Mainers pay proportionately more as a share of their income than upper income households, in other states an even greater share of the tax burden falls on low and moderate income households. Using data from the Institute on Taxation and Economic Policy, Maine ranks 33rd among the sates in tax burden on the 20 percent of lowest income households, compared to ranking 3rd in share of income paid in state and local taxes by the top 20 percent in income. The proportion of income taxes paid by middle income Mainers is estimated to rank 22nd among the states.

Maine Revenue Services estimates that in 2000 the average tax burden or “effective tax rate” was 10.62 percent and had fallen from 11.84 percent in 1996.

Another way to look at tax burdens is to compare the amount of state and local tax revenue per person. With the adjustments for actual property tax collections, Maine ranks 15th among the states, collecting only $107 per person more than the U.S. average. Maine’s “own source revenue” is actually $20 less per person than the U.S. average, ranking 18th among the states.

It is not surprising that to meet the costs of only average state services Mainers must pay slightly higher than average taxes as measured against our incomes, which are lower than those in most states.

It does not seem likely that Maine can raise enough in other taxes or cut current services sufficiently to give every Maine household substantial property tax relief. It seems more effective to target property tax relief to the communities and households that really need it.

The Legislature is looking for an alternative to the draconian effects that would flow from adoption of a 1 percent cap on property taxes, which the Maine Taxpayers Action Network have petitioned for. Many parties (businesses, teachers, municipal officials and citizen groups) could agree on a plan to raise $100 million in new state taxes for the purpose of offsetting property taxes in three ways – more school funding (which is targeted to the communities with lower valuations per pupil), a modest homestead allowance increase for every property taxpayer, and a substantial increase in the property tax relief program, which limits the proportion of income that any household must pay in property tax.

A package of revenues that could cover this amount of property tax relief could include extending the sales tax to amusements and recreation ($28 million), sales tax on personal services ($9 million), tax on residential long-distance telephone service ($5 million), removing the exemption on trade-in credits ($29 million), doubling the current tax on beer and wine ($24 million), and repealing the exclusions of income earned abroad by Maine individuals and companies ($5 million).

Other parts of the package would likely be new state incentives for the consolidation of municipal and school districts, and measures to insure that any increased state spending for municipalities is translated into property tax relief.

There has been a lot of rhetoric about the need to change Maine’s tax system, but it has been difficult to reach agreement that satisfies everyone. The package outlined here could gain support if citizens support their legislators in raising a modest amount of additional state revenue to achieve an important degree of property tax relief.

Christopher St.John is the executive director of the Maine Center for Economic Policy.

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