Two extreme ballot measure will do more harm than good; the Legislature holds key to real reform.

By Will Fessenden

Any real effort at tax reform must be built upon a smartly constructed, responsible state budget. Each administration must be willing to set priorities and build state government and services within the confines of the tax structure.

It should be of little surprise that Maine faces a large budget deficit.Our current sales tax base relies heavily on two sectors, car sales and building supplies, which make up 30 percent of the tax revenue.A tax reform bill before legislators, LD 1088, looks to remedy the issue as it broadens the sales tax and increases the meals and lodging tax.These funds will be used to lower the state’s top income tax rate from 8.5 percent to 6.5 percent.

Under LD 1088 there is a laundry list of services, entertainment and recreational endeavors which would be taxed at 5 percent that are currently untaxed.Because 40 percent of the proposed expanded tax would be paid by non-Mainers, Rep. Thom Watson, D-Bath, the co-chair of the Taxation Committee, says this new revenue would put $75 million dollars back in the pockets of Mainers.

As of 2004, there were 43 states that taxed services and recreational activities that Maine currently does not.For example 37 states charge a tax for admission to amusement parks, 33 states tax admission to museums and historical sites, Maine is just one of 15 states that does not tax admission to circuses or fairs (government and non-profit services would be exempted).

One of the strengths of LD 1088, expanding the tax base will mean that Maine would become less susceptible to the negative effects of a fluctuating economy.

In November, we are likely to see a citizen’s initiative to reduce the motor vehicle excise tax, an estimated loss of $88 million dollars to Maine cities and towns.The money collected from this tax by Maine municipalities pays for local road and bridge projects.The referendum will also call for tax breaks to those who buy hybrid or other energy efficient vehicles.

If approved, the excise tax on newer model vehicles would be cut in half for the first three years of a vehicle’s “life.” In the fourth year, the rate would drop to $4 for each $1,000 of value and remain constant for all subsequent years.

While on the surface the idea sounds like an opportunity to reduce taxes, more than likely that would not be the outcome.Residents with newer model cars would see a significant decrease in their excise tax, those with older cars (like most of us) will see a minimal reduction in taxes, cars older than five years old will see no reduction.

However, since roads and bridge infrastructure are a necessity, most towns will have to make up the lost revenue through property tax increases.The result, Maine homeowners will likely end up paying more in taxes.

In 2005 the American Institute of Certified Public Accountants (AICPA) put together a report titled “Understanding Tax Reform: A guide to 21st Century Alternatives”.Without commenting on a particular tax reform method, they offer a list of goals that all good tax reform policy should contain.They include: simplicity, fairness, the tax system should not impede economic growth, neutrality, transparent, structured to minimize noncompliance, cost to collect should be minimal, government should be able to determine the total revenue, tax payers should be able to determine when/how the tax is to be paid, and the tax should become due at a time convenient for the tax payer.

LD 1088 and the current method for collecting excise taxes meet many of the elements recommended by AICPA.

On the other hand, the so-called “Taxpayer Bill of Rights II” does not.

TABOR II, heralded by many as golden road to tax reform and reducing taxes is destined to cripple our state government.It restricts revenue or expenditure growth to the sum of inflation plus population change; and it requires voter approval to override the revenue or spending limits.

Health care costs alone are growing faster than inflation.The cost of just providing healthcare coverage would force a reduction in the level of government services.The passage of TABOR II would put in place an expensive and slow process for approval.Although intended as tax relief and an economic development tool, TABOR II will do neither.If passed next November, Mainers would not see one penny in tax savings.The net effect will be a hamstrung state government, unable to even provide services to Maine’s children, families and seniors at their current levels.

True tax reform will not come about by limiting the ability of a government to operate, so TABOR is not tax reform. Efforts should be made to increase the revenue streams, reduce the impact on any one segment of society and limit the net effects on Maine’s small business owners. This is the reform Maine needs now.

Will Fessenden is a past chair of the Androscoggin County Democratic Committee, considers himself a “community/grassroots organizer” and serves on several nonprofit boards and committees. He works in Auburn and lives in Sabattus with his wife Jennifer and their two boys. E-mail: will_fessenden@yahoo.com.