Last week’s Lakes Region Suburban Weekly confirms that, at least in Windham and Raymond, everything I have been saying about tax reform is true. Both towns were able to keep tax increases well below the rate of growth in prices and incomes, thanks to tax reforms passed into law by Governor Baldacci and the state Legislature. Instead of relying on a TABOR-style automatic formula, maybe we can govern ourselves through representative democracy after all!
Sorry, but I’m going to have to talk some economics here. In general, prices increase more slowly than the cost of government services, which increases more slowly than personal income. Thus, if you want to retain the current level of education, road maintenance, public safety, and so on, taxes must increase faster than the rate of inflation. However, over time it gets easier to pay that level of taxes and fund that level of services, because our incomes grow faster than the cost of government services. Thus TABOR, which limits tax and spending growth to the rate of inflation, means service cuts over time.
The economic and tax policies that George W. Bush and Senators Olympia Snowe and Susan Collins champion are causing income inequities. Most of us are not making much more this year than last year. Similarly, responsibility for paying taxes isn’t fairly distributed. Low and middle-income people pay a higher portion of their incomes in taxes than wealthy people do. Business also isn’t paying its fair share.
The people of Maine expressed their unhappiness with the property tax regime through the school funding initiative that passed not too long ago. The state government determined that it could not manage funding 55 percent of school expenses right away. So, under LD 1, the state government is phasing in increased school aid, and will be all the way there by 2008. In the meantime, spending caps have been imposed at all levels of government.
LD 1 is working in Windham and Raymond. In both towns, property tax rates increased at less than the rate of inflation. Inflation for the year ending in February 2006 was about 3.6 percent. By comparison, total property tax increase for Windham is projected to be 1.4 percent. That makes it about a 0.7 percent increase per person, because Windham’s population is growing at a good clip. Raymond’s property taxes are expected to increase 1.3 percent per person.
However, as I have said, the cost of government services goes up faster than inflation, because education, health care, employee salaries, and fuel prices in particular increase faster than average prices do. Windham is maintaining the same level of services, but the cost of providing those services went up about 4.8 percent (4.4 percent for town expenses, 5 percent for school expenses). However, increased state aid allowed Windham to rein in property taxes. Similarly, in Raymond, the budget had to increase 3.1 percent to cover the existing level of services, but LD 1 covered the rest.
The growth in cost of services per person in both towns was less than income growth. Windham’s services costs grew roughly 4.1 percent. Raymond’s grew roughly 1.7 percent. Nationwide, personal income grew 4.6 percent in 2005.
Even though the State Government is subsidizing the reining in of taxes in Windham and Raymond, Governor Baldacci has managed to keep annual state budget growth to 3.29 percent, less than both inflation and income growth. That’s also much better than any of Maine’s last four governors has been able to do.
To sum up: TABOR’s spending limits are unrealistic and will undermine Maine’s “Life as it should be!” On the other hand, sensible and fair tax reform, representative democracy, and good government can address our state’s problems!
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