As we work to register 5,000 Mainers as Libertarians by December first, one might ask – Why do we need a strong third party? The answer is – because we need new fresh ideas. Case in point – the similarity between the tax proposal by Gov. LePage this year and the law passed by the Democratic Legislature and Gov. Baldacci in 2009.
To paraphrase Yogi Berra, in theory there is a difference between the two parties but in practice there is not. You only have to go back to 2009 to remember LD 1495 passed by the legislature and signed by Gov. Baldacci. That law, designed by the Democrats to expand the tax base, lowered the state income tax to a flat rate of 6.5% and expanded the 5.5% sales tax to many services. There were multiple complicated tax rates for meals and rental cars and even a special tax rate for candy. This law was repealed by people’s veto in 2010 (Question 1 in the June 2010 election).
We are now in 2015 and LePage is proposing increasing the sales tax to 6.5% and expanding it to cover more services. The top income tax rate would be lowered to 5.75%. There are some important differences here, such as repeal of the estate tax and, most importantly, cuts to municipal revenue sharing that make property tax increases likely in some towns. The proposal doubles the homestead exemption for senior citizens to $20,000 while eliminating it for people under 65. If property taxes were held flat, LePage’s proposal would reduce spending by $267 million (Detailed Tax Foundation Report Here). As we all know streamlining educational bureaucracy is difficult and there is no guarantee against property tax increases.
Gov. LePage may be motivated by a good idea of a consumption based fairer taxation but his plan will leave us on thin ice if it becomes law. The 2009 law was seen as a tax increase by the electorate and especially by the retail and service industries. The reduction in income tax did not seem that significant to the taxpayers and the law was repealed by people’s veto. The same could happen to this proposal, especially since the sales tax rate would be increased and not just expanded to more services.
Even if there were no people’s veto, there would be a possibility of a backlash against the legislature, especially if property taxes go up. Newly elected and likely democratic legislators would then be working with a new higher sales tax, while an income tax would still be in effect. On January 13th Gov. LePage, who has four years left to serve, said at the agricultural trade show in Augusta, “I believe in the next five or six years we could totally eliminate the income tax.” Since no one envisions the income tax being abolished in the near term, it could actually be increased if things do not go according to the governor’s six-year plan.
Lastly, we could simply end up with even higher property taxes. In 2010 Maine property taxes per capita were 11th in the nation and, while 39 states do better than us, we could do even worse.
I dislike Gov. LePage’s proposal for three reasons. First, an increase in sales tax hurts poor people by increasing the sales tax rate and expanding it for people who pay little or no income tax and thus do not benefit from lower income tax rate. Second, the income tax remains in place, possibly to be increased in the future. Third, property taxes may increase randomly in towns that don't have newly-taxable non-profits.
LePage could have made a bold libertarian-minded proposal to abolish the income tax and introduce a broad consumption tax with a tax credit that would exempt the poor from taxes until they exceeded a poverty level income. This tax would be fair and would encourage investment and savings while giving relief to the needy.
We need to grow our movement so that we can elect politicians with new and improved ideas, instead of rehashing similar concepts every five years with similar results.