Tax reform: Baldacci should resist efforts to water down bill
If we wait for the perfect tax reform bill — one that offends no one — we will wait forever.
That’s why Gov. John Baldacci should pick up his pen and sign the income tax cut plan before him.
It will have a small effect on some industries, but it will have a big impact on two of Maine’s most significant tax problems.
The proposal is straightforward: Mainers would trade a broadening of the state’s sales tax for an income tax cut.
The top income tax, which applies to most wage earners, would drop from 8.5 percent — the highest in New England — to 6.5 percent, putting us in about the middle of the pack.
Meanwhile, the state would extend its sales tax to some new areas, like automobile repairs and ski lift tickets, plus increase the meal and lodging tax, and real estate transfer tax on homes selling for more than $500,000.
Obviously, a significant portion of the sales tax increase is aimed at out-of-staters who make overnight visits and own high-end second homes. So, it is a significant shift in tax burden.
It’s just the sort of shift recommended by the 2006 Brookings Institution Report and advocated by GrowSmart Maine.
Maine, the study found, had relatively low tourist taxes compared to other destinations, and could afford to shift some of its tax burden.
The Brookings report, as well as other studies, have identified Maine’s three biggest tax problems.
First, our overall tax burden is high, mainly because our average incomes are so low.
Second, the state’s sales tax income swings wildly because it depends so heavily on the purchase of big-ticket items, which suffer during an economic downturn. Broadening the sales tax would help smooth out those fluctuations.
Meanwhile, as the state attempts to attract entrepreneurs and other job creators, the state’s high income tax rate is an obvious and painful disincentive.
Critics are now complaining to the governor that this proposal is too much, too quickly.
On the contrary, we worry that this may be too little and too slowly. It would have been far more dramatic and effective to cut the rate in half, to about 4 percent.
That would have told the world that Maine was taking its high-tax reputation seriously and was now open for business.
The 2-percent income tax rate cut is a short but significant step in the right direction, and it is better than nothing at all.
Critics also say this proposal has not received bi-partisan support, with only one Republican vote.
We’re more impressed that the Androscoggin, Portland and Bangor Chambers of Commerce have lined up behind this proposed change.
That, to us, shows that this bill has received about as broad of support as we will ever see for changing our tax system.
It’s good that the governor is considering this tax bill from all sides. We worry, however, that this already modest bill will become even more watered down as this legislative session comes to an end.
The governor should resist attempts to weaken tax reform and sign the bill as it stands.

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