The problems with Maine’s budget go deeper than structural problems within the state’s tax code. Many of our problems didn’t start here and won’t be fixed here.

They are rolling down from Capitol Hill. Of course, state and local lawmakers do plenty to make the damage even worse.

While Maine has worked to constrain the size of government, and towns and cities have struggled to keep mill rates steady by trimming their payrolls, the federal government has exploded in size, especially during the Bush administration.

But while the size of the federal government has grown, policy changes have shifted more of the responsibility for programs onto states and created huge budget holes at every level of government.

Much of the gap filled this year by the Legislature was created when the feds reduced the percentage of Medicaid funding paid to the state. That change tied the hands of state government and tangled up legislators in emergency budgeting that required painful cuts to services and some trickery.

But that’s just one example.

In 1975, Congress passed the Individuals with Disabilities Act. The act said the federal government would pay 40 percent of the national average costs to educate disabled kids in public school. To date, the payout has been about half of that.

Sen. Susan Collins made a move this month to increase funding for IDEA by $2.2 billion a year for six years to reach full funding by 2010. The boost would have brought $922 million to Maine over the next decade.

That’s the kind of boost in funding that could make a real difference to the mill rates in service centers, such as Lewiston and Auburn, and small towns alike.

The measure failed.

Taking care of donors

Congress and the president have different priorities. And I don’t mean the war in Iraq or fighting terrorism. There will never be enough government revenue to accomplish everything that needs to be done. And there are many things that government should just stay out of.

But current tax law allows billions of dollars to illegally slip through the cracks while shifting the burden of financing the government more and more onto the backs of people who are paid for their labor, and away from businesses and wealthy individuals.

The never-ending push to eliminate or greatly limit taxes on wealth – dividends, capital gains and inheritance – leaves a bigger share of the tax burden on people who actually work for a living.

Tax policy favors individuals who receive income from sources other than a salary. These same people make up the political donor class and therein rests the conflict.

Democracy, with everything wonderful that it means, makes for a messy tax code. A little favor here, a little favor there and pretty soon the people getting the favors avoid their responsibilities.

Just last week, the Senate passed a change in tax law to fix a big problem. U.S. exporters were receiving a $5 billion annual tax break that was ruled illegal by the World Trade Organization. It had to be fixed or some U.S. companies would have faced high hurdles to foreign markets.

A 900-page solution

But instead of just fixing the problem, the Senate OK’d a 900-page law that would create $170 billion in new business tax breaks over the next decade. The benefits go to lawyers, horse owners, cruise ships and Oldsmobile dealers, to name just a few. This one bill, negotiated mainly out of sight, in the end is likely to cost the Treasury $120 billion over 10 years. That amount would have paid for Sen. Collin’s special ed funding of about $12 billion 10 times over. But car dealers and lawyers carry a bit more weight than disabled kids who aren’t old enough to vote.

Here’s another example. Also this month, the Senate voted in favor of a $14 billion energy tax package, including $9 billion in tax incentives for the oil and gas industries, which are already very profitable. Supporters of the bill said it would stimulate domestic energy production in light of high gasoline prices. But the tax breaks are long-term incentives and wouldn’t do anything to reduce current gas prices.

But a tax code riddled with questionable breaks is only the beginning. Not content with taking just what the tax code allows, many of this country’s most profitable companies manipulate the system to avoid any taxes, using tactics that are left of legal.

In his excellent book “Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich – and Cheat Everybody Else,” New York Times tax reporter David Cay Johnston documents common abuses.

Corporations shift money overseas, hide profits and avoid paying their tax obligations. Publicly traded companies report their profits to shareholders. But they often report different, and smaller, “profits” to the IRS, maximizing stock price and minimizes tax payments. It’s a dodge.

Corporate tax revenue has disappeared, despite record profits. In the early 1950s, corporate taxes accounted for more than 30 percent of federal revenue. In 2003, the number dropped to about 7 percent.

Individuals pull the same stunts, and some don’t even bother trying to hide it. They flaunt the fact they don’t pay taxes, daring the Internal Revenue Service to act.

Hobbling enforcement

But IRS enforcement of tax laws has been gutted. The agency doesn’t have the money, people or power to go after influential tax cheats.

According to a 2002 report to the IRS Oversight Board, out of 4.5 million cases of unpaid taxes, the IRS only went after about 60 percent of the lawbreakers. Only about one in four large corporations known to owe taxes was confronted.

Honest taxpayers are left to pick up the tab. Estimates are all over the place, Johnson writes, but could be as high as $64 billion annually. And these aren’t new taxes, but taxes owed.

Johnston also writes about the vast income gaps between the rich and poor. Tax inequality keeps the gap growing. As the rich pay a smaller and smaller percentage of their income in taxes, the burden shifts down the ladder to the rest of us.

What does any of this have to do with your mill rate?

Plenty. Every state and locality is tied to the federal government, which hands out money and imposes rules and regulations at will.

Providing a quality education for disabled students is a good idea.

Requiring that no child be left behind in under-performing schools is another one.

But when the rule makers don’t send the money as well, city councils and town selectmen have to make up the difference or risk their federal funding.

Mad about your property taxes? Me, too. But we can’t put all the blame on the mayor or city manager.

It’s about national priorities embedded in tax law. Right now, they’re all messed up.

Remember that $600 check from President Bush? Maybe he should have written “For property tax” on the memo line. It was nice to get – and spend – but we pay the piper when our mill rates go up.

Neither Question 1 nor the tax cap will solve our problems. They’ll make them more complicated and force the state – through higher sales and sin taxes, and who knows what else – to pick up the slack.

Local control, local services, local accountability – all gone. It’s a recipe for mayhem.

Ready for a tax revolt? Me, too. But let’s revolt against the right injustice.

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