Playing to our strengths | Tax reform and a bond initiative on the June ballot offer hope for Maine's future
New York Times editorial columnist Thomas Friedman, in his book “From Beirut to Jerusalem,” relayed a joke involving two people engaged in a philosophical conversation. “One says to the other, ‘Are you an optimist or a pessimist?’ And the other answers, ‘I’m an optimist, of course. I am certain that today will be better than tomorrow.’”
The thrust of this philosophical conversation resonates for a vocal few in Maine. To avoid this pitfall, business leaders and policymakers alike must acknowledge and build on Maine’s strengths while working together to make improvements that foster economic development, enhance quality of place and promote broadly shared prosperity. Left unchecked, such sentiments could become a self-fulfilling prophecy.
Two current issues demonstrate that Maine is headed in the right direction and that ultimately tomorrow will be better than today. The first is tax reform. Question 1 on the June ballot will determine the fate of the tax reform bill signed into law last year. Specifically, voters will decide whether to repeal a law that lowers taxes for 87% of Maine households.
Tax reform modernizes Maine’s tax system primarily in three areas: the income tax, sales tax and Maine Residents Property Tax and Rent Refund program (the “circuit breaker” program). Reform replaces Maine’s four marginal income tax rates with one rate for those earning $250,000 or less a year and creates new tax credits, such as the refundable household credit for Maine residents exclusively. The law also broadens the sales tax base to include additional services and modifies the circuit breaker program to provide property tax relief to more Maine residents. It exports almost $40 million in taxes to nonresidents in 2011 alone.
Although many Mainers will pay more in sales tax, nearly nine out of 10 Maine families will realize a net tax decrease due to the reduced income tax, according to Maine Revenue Services. In fact, when all changes are considered together, Mainers receiving tax cuts will have, on average, a net tax savings of approximately $150. More money in the pockets of more Mainers means more money they can spend in local economies to support Maine’s small businesses, preserving and creating jobs.
Tax reform will also make Maine’s chronically volatile and unstable tax system more progressive and state revenues more reliable to maintain funding for health care, education, infrastructure improvements and other services important to a strong, prosperous Maine economy. And, with a new marginal rate lower than the existing top rate, tax reform addresses the perception that many in the small business community share that a lower top rate will improve Maine’s business climate.
Bonding experience
The other example of a positive step forward is the pending $57.8 million in bonds approved by the Legislature with overwhelming bipartisan support, which also awaits the outcome of the June 8 vote. Bonding to fund needed infrastructure provides one of the primary tools state government can use to create jobs. Investing in transportation and other infrastructure not only creates and preserves jobs, it also makes Maine a more attractive place to do business.
For example, a portion of the bonds will be used to aid in the purchase of rail lines belonging to the Montreal, Maine & Atlantic Railway. This measure alone would help save 750 jobs in Aroostook County, an important region that must continue to play a substantial role in Maine’s economic growth. MECEP estimated that an original $99 million bond proposal would have created approximately 2,400 jobs while preserving many more and keeping debt servicing ratios within appropriate limits. While the smaller bond issue on the ballot will generate fewer jobs, it will still provide a much needed boost to Maine’s economy.
Everyone agrees that private business activity is the heart of a competitive Maine and national economy. But government can play a supporting role in difficult economic times like today. Indeed, one of the lessons of the 2009 American Recovery and Reinvestment Act, supported by Maine’s entire congressional delegation, is that timely and targeted investment by the government works, especially when private demand has diminished. The Council of Economic Advisers recently estimated that ARRA has preserved or created 13,000 Maine jobs. These are 13,000 paychecks that put food on the table for Maine families and boost overall economic activity.
Obviously, Maine cannot undertake action of ARRA proportions, but our decisions to enact tax reform and put a jobs bond package on the ballot represent two concrete steps toward helping Maine recover and prosper. Tax reform and the jobs bond are, like any legislative compromise, not perfect. However, both represent meaningful progress on a path toward sustained economic growth. Both build upon Maine’s unparalleled strengths: its work force, its small business community and spirit of entrepreneurship, and its quality of place. Both offer promise that tomorrow in Maine will be better than today.
Dan Coyne is a fiscal policy analyst with the Maine Center for Economic Policy. He can be reached at dcoyne@mecep.org. Read more of Public Engagement here.
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