Ethan: So our Republican governor just proposed creating over 200 new taxes, including on the financial advice you give your clients and the golf game you play to relax. You gonna survive?
Phil: I’ll never feel relaxed when I shank a fairway iron, regardless of the sales tax. But if he cuts the income tax rate by 30 percent, you bet I’ll be more relaxed.
Ethan: As a friend said to me, Gov. LePage proposing to raise and broaden the sales tax is a bit like Nixon going to China. Do you think Republicans will support this one?
Phil: Remains to be seen. It will depend mostly on whether it actually reduces the overall burden.
Ethan: For me, the crux of the viability for his plan will be whether it makes our tax code more or less progressive. Currently middle-income families in Maine pay over 9 percent of their household income in state and local taxes. But those in the top 1 percent pay less than 7 percent. Before voting, everyone should ask: Does this plan make that condition better or worse?
Phil: Didn’t your party in the last session lead the way in raising the sales tax, hence making progressivity worse?
Ethan: Yes, unfortunately, they did. They raised the sales tax to pay for your party’s income tax cut for the wealthy. How ironic that a majority of Republicans last year voted to shut down government over something your leader is now proposing.
Phil: It is. But since your concern is progressivity, you should be in favor of taxing financial services and golf. These will primarily be paid by people with means.
Ethan: I am. I support broadening the sales tax, as the governor has proposed. The question for me is what one does with that revenue. If he targets that new revenue to help the middle class, poor and vulnerable (either through targeted tax cuts or needed expenditures), then count me in. But right now it appears that he may be giving most of it to the wealthy.
Phil: I think the most important dynamic he is putting forth is that our economy has changed and we need to shift from an income-based tax system to one that is consumption-driven. Our economy is much more service-oriented now, and whole sections of our economy go untaxed, while others bear the entire burden.
Ethan: I agree 100 percent with your latter point. But again, you have to be careful that middle-income people don’t get hammered when you tax this newer part of our economy. The top 1 percent currently pay less than 0.07 percent of their income in sales taxes, while the rest pay up to 6.2 percent. This could make it worse.
Phil: Or it could make it better. However, property and income taxes are confiscatory. Sales taxes are voluntary. I will ultimately judge this plan on whether it sufficiently shifts from these confiscatory taxes to the voluntary ones, while being careful not to harm any growing or struggling industries. If so, I believe it will attract more people to Maine to pay the voluntary tax and be a win-win for all of us.
Ethan: Sales taxes are not voluntary. If my washing machine breaks, I will now need to pay a tax on repairing it. When I need to get a haircut, I will now be required to pay a tax. When I need financial or legal advice on how to set up my will, I will now be required to pay a tax. Nothing voluntary about it.
Phil: Except that if you choose to not do any of the above, then you won’t pay anything.
Ethan: Sure, in the same way that if I choose to live under a bridge, I won’t have to pay property taxes. Or if I quit my job, I could avoid the income tax.
Phil: The biggest difference for me between this plan and the one Democrats proposed in 2009 is that the governor’s plan appears to reduce the overall tax burden by almost $300 million, whereas the Democratic plan was “revenue-neutral” (in theory, anyway).
Ethan: C’mon, Phil, you know there is no free lunch. The $300 million will have to be made up somewhere. And since the focus of his cuts is on municipalities, you know they will have to raise taxes locally to make up the difference. And when you raise taxes locally, it hits the middle-income and poor the hardest.
Phil: Here’s the difference: The governor gives them the path to do it without hurting families. He eliminates the loophole large nonprofits enjoy. Instead of local residents picking up the bill, institutions like Maine Medical and Bowdoin College will be called upon to share the burden. That sounds like something right up your alley.
Ethan: Two problems. For rural towns that don’t have large nonprofits, every family will see their bill jacked up. Second, that increase makes up only a third of the loss. The rest will be borne by homeowners, small businesses and renters.
Phil: Then people could call upon their local officials to reduce spending by collaborating with county government to consolidate the redundant services going on in every city, town and plantation. The best part of the governor’s plan is that it allows municipalities to take responsibility for their own budgets and stop relying on the state to send them revenue.
Ethan: So you support the part of the plan that eliminates revenue sharing in exchange for the nonprofit tax?
Phil: I need more facts. On the surface the plan weans local government further off the state government teat and gives them possible options to avoid passing the burden on to local families. If this holds, I’m listening.
Ethan: If the Legislature truly wants to give municipalities the tools you seek, it should allow for local option sales and income taxes. Then you’d have a fairer exchange that spreads the burden more equally.
Phil: Oh, great. You just gave me another thought to worry about when I swing the club – even more cost.
Ethan: Pay to play, brother. Pay to play.
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