The rush to set a new bottom line



The release of Governor Paul LePage’s budget last Friday was met with stunned silence. Budget watchers all over the state went around with thought bubbles over their heads that looked like this: ??!! This week, lips began to unzip.

It is a juicily target-rich document, with jaw-dropping proposals throughout. It phases out the income tax. (Republicans cheer.) It expands the sales tax base and increases the rate. (Republicans gasp.) It takes money away from smoking cessation and healthy community programs. (Democrats faint.) It eliminates a third of Maine Forest Ranger positions.

But just when a nugget is uncovered that makes the budget look like a non-starter, another emerges that looks like a great idea. Serious analysis of the overall impact will take time, but it is highly unlikely that the budget will be given a grace period while that analysis is undertaken.

We will react piece by piece to the budget headlines that make the news or to cries of pain issuing from lobbyists. “Advocacy alerts” will fill the air like snowflakes in January. Most of us will never put in the time to understand how the budget hangs together in its entirety and whether the unlovable bits are offset by the benefits.

The taxation portion of the budget represents a philosophical shift from a high tax, high exemption system to one that calls for lower taxes and fewer exemptions. Appendices A and B of the governor’s budget list items for which taxpayers are now reimbursed or are exempt from paying taxes. The list goes on for pages and includes everything from sales to eye banks to youth and scouting organizations, from fish passage facilities to plastic bags sold to redemption centers, from railroad track materials to self-help literature on alcoholism. The governor’s proposal would eliminate all kinds of exemptions and deductions.

He proposes expanding the income bracket at which one pays no income tax at all to $9,700 and raising the ceiling of the middle income bracket to $50,000, a vast improvement over the current $21,201 that bumps a filer into the highest tax bracket.

The governor’s proposal adds a fourth tax bracket for the highest income levels in tax year 2017. Though the rate for those high earners is less than that of those just below them on the income scale, those high earners may still pay more due to the elimination of certain deductions. All of these changes happen incrementally, over a four-year span.

The governor proposes other tax changes to compensate for the loss of income tax revenue. He would bring back the proposal to expand the sales tax base, for many of the same reasons now familiar to us. We are shifting from a manufacturing economy to a service economy. As a consumption tax, the sales tax is progressive.

The budget bill adds taxable items by category: prepared foods, soft drinks, amusement and recreation services, repair and maintenance, and personal services. Examples are popcorn, meat jerky, marshmallows, amusement carnivals, fitness centers, clowns and comedians, dance lessons, doughnuts, dating services, punch drinks and palm reading.

But the governor does more than expand the sales tax base, he increases the rate, too. A temporary half percent increase on the 5 percent sales tax was slated to sunset this year on June 30. Instead, the sales tax would jump to 6.5 percent. Groceries and automobile repairs would be exempt.

For the property tax, what is left of municipal revenue sharing (the program has been cut by about 2/3 over the last several budget cycles) would be funded for one more year, and then eliminated. To fill the gap, nonprofits with property valued at greater than $500,000 would pay property tax at half the town’s mill rate. Churches and government property would be exempt.

That only begins to describe the broader tax changes, and there are plenty of proposals on the spending side as well. Make yourself a hot chocolate and Google up the “2016-2017 Budget Overview” or find the link on the governor’s website. It is a magnificent document if you really want to know how we get a budget in Maine and what is in this one.

With revenue forecasting, revenue sources, tax expenditures, the budget forecast, the budget process, how the budget is laid out and the terminology used, and an organizational chart of state government, the budget overview is a goldmine for the pathologically curious.

There are summary tables for General Fund appropriations and anticipated revenues. Another table shows revenue “adjustments,” i.e. what changes the governor would make in taxation.

An eye-popping pie chart shows the broad breakdown of state government appropriations for the new budget. The Department of Health and Human Services, and Education (K-12, Higher Education and teacher retirement) would receive 78.5 percent of all funds. Everything else in the Augusta portfolio gets the remaining 21.5 percent.

That includes all other state departments and agencies, the judicial branch, the legislature, debt service and those tax expenditures mentioned earlier. Bottom line, dear readers, is that if you are concerned about state spending, waste not thy time on judges’ salaries, marine resources or agriculture. Go right to health and education, the only areas where spending control will make a real difference.

 

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