Now that the dust has settled, it’s time for a postmortem on tax reform — an ambitious legislative effort that was a huge loser at the polls on June 8. Some 61 percent of voters rejected a measure that, by any objective analysis, would have cut their taxes without endangering state revenues.
What went wrong? Well, a lot of things. Proponents had nothing but bad luck, while opponents had an amazing run of good luck.
It’s hard to remember now, but the so-called “people’s veto” campaign actually wasn’t, because opponents couldn’t get enough signatures to block the bill after enactment last year. Instead, they staged a slow-motion veto, delaying the effective date through their petition, and even then barely got enough valid signatures to qualify in 2010.
Unlike actual people’s vetoes of beverage taxes in 2008 and same-sex marriage in 2009, the first of which involved a last-minute legislative tax change, the latter a historic focus of referendum contention, no one could truthfully say they hadn’t had a chance to weigh in on tax reform.
The outlines of the income tax/sales tax swap were clear in 2005, when the Legislature couldn’t quite get things organized. Republicans started drifting away from what was logically a bipartisan effort. Lowering taxes on income and increasing them on consumption is what the GOP has long favored.
Nonetheless, Democrats pressed ahead alone. In the 2007 session, votes were assembled, the bill was ready– and then Gov. John Baldacci declared he’d veto it.
That was the first piece of really bad luck. It’s difficult for any bill to hold together when fellow party members part company.
In 2009, things were a little clearer — Baldacci again threatened a veto, but was willing to talk, insisting on dubious concessions to the real estate lobby and ski areas, but at least leaving its outlines intact.
But tax reform was pretty shopworn, and it showed. When a group of Republican senators announced their do-over attempt to block a bill they’d already voted on, the die was cast.
The tax reform bill was poorly designed for a referendum campaign. While the basic premise was clear — lower the income tax, expand sales, lodging and rental car taxes, in the process exporting taxes to visitors — the actual bill was quite complex.
It involved a scheme to eliminate tax deductions and instead substitute standard credits that would phase out as income rose. This provided more opportunity for attack, sowing doubts among the undecided.
The referendum campaign became downright farcical. Rather than clearly explain, to an audience of voters rather than legislators, what tax reform would do, pro-reform ads initiated a pointless debate about whether repeal would “raise taxes.” Since tax reform was still on hold —  nothing had happened yet — all this did was further confuse things, strengthening the repeal vote.
And at the grass-roots level, when you see the neighborhood auto repair shop (labor would join parts as taxable) lobbying against reform, it’s not a good sign.
Republicans gathered afterwards for a celebratory picnic, though it’s hard to see what they were celebrating. The Party of No apparently has nothing to offer on the subject. Sen. David Trahan (R-Waldoboro), who chaired the anti-reform campaign, said he’d submit a bill to dedicate “excess revenues” above the state’s spending cap to reducing income taxes. The state has never come close to the cap it adopted in 2005 — and likely won’t for years to come —  so don’t hold your breath.
Five years of legislative effort for naught. One doubts anyone will want to touch tax reform again.
There is an intriguing alternative, however. Rhode Island just lowered its marginal income tax rate, now 9.9 percent, to a shopper-savvy 5.99 percent without expanding its sales tax at all.
What it did was do away with all itemized deductions and most state tax credit programs — a classic kind of tax reform. The bill, which passed by acclamation, will end up costing taxpayers about what they pay now, but will substantially improve Rhode Island’s ranking in state-by-state comparisons. Overall, 95 percent of taxpayers will get a small reduction — while the rich will pay more.
Rhode Island’s tax code was more complex than Maine’s, but simplicity was certainly the magic selling point.
With Rhode Island now advertising the 25th highest marginal rate in the nation, down from 6th highest, Maine’s 8.5 percent rate stands out even more. In one sense, Rhode Island’s tax reform might be more apparent than real. Yet it became law, while Maine’s did not.
And politics is the art of the possible.