Ethan: Hey, did you see me on TV early last week?
Phil: Hello, I was standing right next to you.
Ethan: Oh yeah, I often zone out when you start talking. Forgive me.
Phil: No apology needed – my family does the same thing at times.
Ethan: Did you notice how I was on fire slamming Democrats for not offering an alternative tax plan?
Phil: Yes, you were. Although you obviously missed it, I concurred with your assessment. At that point, Republicans had definitely taken the upper hand in their goal of eliminating the income tax.
Ethan: Well, clearly the Democrats saw the broadcast, because within two days they rolled out exactly what I was hoping for! A visionary plan that focuses tax relief on the middle class and preserves vital local services.
Phil: I suspect your party leaders already had this public opinion persuasion tactic in the queue.
Ethan: Why are you trying to diminish my significance?
Phil: Actually, I’m not, because it appears they did take a page from our “Agree to Disagree” column in February when we concluded a compromise plan should have “a smaller sales tax increase, less of an income tax reduction, and more property tax relief that goes directly to the resident.”
Ethan: Not only that, they specifically took your advice on the sales tax: “The first thing I would like to see is that the sales tax increase be eliminated. I can live with the broadening … .”
Phil: Frankly, they have put Republicans on the defensive with this proposal. They raise fewer taxes and, as you say, they target the relief to the middle class. Mistakenly, they leave the top rate at 7.95 percent, which will continue the exodus of high earners out of Maine and deter inflow. Politically, though, they were smart to put the relief in the hands of families making less than $300,000 a year.
Ethan: The fact that they don’t provide income tax relief to our wealthiest is why they are able to provide so much relief to everyone else. The opposite is true for Gov. LePage’s plan, in which half of his relief goes to the top. I expect we both would agree that those making $300,000 are not hurting in this economy anywhere near how families making less than $50,000 are hurting.
Phil: Of course – yet those earning enough to pay the top rate in this plan also create jobs. We need to encourage them to invest capital into our aging infrastructure and jobs for Maine people, and not leave Maine for tax relief elsewhere.
Ethan: I think probably the smartest part of the Dems’ plan is restoring and increasing revenue sharing. Besides being good policy, it is smart politics, as they will get municipal officials on their side – something Gov. LePage didn’t understand.
Phil: The sad truth of politics, yet it perpetuates the myth that property taxes will drop. History shows they have climbed faster than inflation over many years.
Ethan: Additionally, it was smart for Democrats to accept the governor’s proposal on broadening the sales tax. As stated above, they do not raise the sales tax above its current 5.5 percent, but they do include the guv’s proposal to create a “sales tax credit” on the income tax form. This accepts the governor’s desire to export more Maine taxes to tourists, without hammering those of us who live here year-round. In total, Dems raise taxes about $400 million over the biennium, whereas the governor proposes raising just over $600 million.
Phil: I think I just got vertigo. Republicans are raising taxes more than Democrats? Are you sure you don’t want to become a Republican?
Ethan: Seriously. I could have used a few of this current flock back in my day in the Maine Senate.
Phil: The big difference is in how the money is spent. Democrats raise more than they put into relief, and while they have certainly targeted their relief to the middle class, they are not moving Maine down the road of eliminating the income tax, a major goal of Gov. LePage and us Republicans.
Ethan: True. The plan puts about $160 million into property tax relief by doubling the homestead exemption for every homeowner, accepting the governor’s proposal on the Property Tax Relief Fairness Program and injecting $80 million annually into revenue sharing above what the guv wanted. If Democratic projections are correct, that should amount to hundreds of dollars in relief to most families and up to $1,500 for seniors.
Phil: But the so-called tax relief isn’t delivered to the taxpayer – rather, to local government, where they mask their spending increases. Additionally, they raise over $100 million in new revenue to grow the size of government. From my perspective, that was a tactical mistake on the part of Democrats. Maine people do not want a bigger government.
Ethan: Perhaps, but Maine people also don’t want fewer services and don’t want their property taxes to rise. My sense is that they are simply countering LePage’s use of his tax reform plan to impose an ideology of fewer services.
Phil: So, where do you think this leaves the Legislature?
Ethan: I think it increases the possibility that we’ll get tax reform. Both sides have now agreed to broaden the sales tax and to provide property/income tax relief. And both sides have rejected the most contentious parts of the governor’s plan: taxing nonprofits and eliminating revenue sharing. From here, it is merely a matter of what type of relief is provided, how much and to whom.
Phil: That’s correct. And I think that compromise will start (and maybe end) with both sides having to agree to plans that are revenue-neutral. That is, Democratic legislators must agree to not raise more money than they are putting into relief. And Republican legislators must agree to not raise less money than they are putting toward relief.
Ethan: As hard as it will be for both, that seems essential.
Phil: And then somebody needs to find out if the governor would even sign it.
Ethan: Oh yeah, he is kind of important in this as well.
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