May 5, 2013

JOHN FRARY: Barter, compromise leading to bipartisan tax code revision

John Frary

A bipartisan group of 11 leading Maine Republicans and Democrats have devised "An Act to Modernize and Simplify the Tax Code."

The Republicans who worked on this project are enthusiastic because it would cut Maine's income tax rate in half, from 8 percent to 4 percent, eliminate Maine's estate tax and reduce the corporate income tax rate from 8.93 percent to 7.5 percent. The Democratic supporters like it because it promises to increase the state's revenue by as much as $700.000.000.

The proposal is "pro-growth," according to the contrasting values of the two parties. Some Republicans believe it will stimulate state economic growth by encouraging private investment and induce retirees to choose a Maine residence for taxation purposes. Some Democrats see that it will finance the growth of government.

The net tax increase offsetting the income and estate tax cuts and boosting overall revenues is to be achieved by an across-the-board expansion of the sales tax, i.e., all consumer purchases, goods and services alike, will be taxed if the bill is adopted.

Health care and educational services alone would be exempted. The general sales tax will increase by 1 percent.

Edmund Burke, the great 18th century statesman and seminal conservative thinker, spoke truly when he observed that nothing can be achieved in a representative assembly except "by barter and compromise."

The Republicans, faced with Democratic majorities in both houses of the Legislature and seeing little prospect of cutting the state's budget further, are looking for some way forward in which they will have a say. The Democrats, unwilling to cut and fearful of proposing tax increases unilaterally after the lopsided people's veto of L.D. 1495 are willing to give ground on their "tax the rich" sloganeering in return for bipartisan agreement on expanding tax collections over all.

A reminder for readers with short memories: L.D. 1495 was the bill passed by the Democrats that reduced the income tax while imposing a sales tax on a long, long list of services, including auto repair and ventriloquist performances.

It's significant that the bill will be proposed by Rep. Gary Knight, R-Livermore. Knight and fellow Republicans, Sen. Roger Katz of Augusta, Rep. Amy Volk of Scarborough, Rep. Dennis Keschl of Belgrade and Rep. Lance Harvell of Farmington, helped devise it because it promises economic growth. Independent Sen. Richard Woodbury of Yarmouth), the only credentialed economist in the group, believes that it will "incentivize" and encourage people who live and work n Maine.

It's fair to assume that the Democrats like the idea of solving Maine's huge and growing budget shortfalls by getting more money from the taxpayers, although they are not prepared to say this openly and explicitly.

The argument that a growing economy is the best means of increasing state revenues and easing our billion-dollar deficit is surely worth addressing, but few Democrats have a word to say for or against it. They either haven't noticed or don't want to acknowledge that Maine's income tax revenue has increased since the Republicans cut the rates.

House Speaker Mark Eves, D-North Berwick, tells us that the Democrats' litmus test is whether the bill will make the tax code more or less progressive. This seems to imply that they don't much care whether it promises economic growth or not. This priority is more than a little odd since, if the economy falters and the number of "rich" people diminish, the humble folks they claim to care about will end up paying the bill for Maine's distended budget. How could it be otherwise?

The one thing almost all Democrats claim to like about the proposal is that it's a bipartisan compromise. Rep. Nate Libby, D-Lewiston, one of the plan's negotiators, says compromise is vital because a likely veto by Gov. Paul LePage stands in the way of the tax increases the Democrats desire. The compromise under consideration offers them the hope of gathering enough Republican votes to override such a veto.

LePage has deferred taking a position until he has had a chance to study the details. This is a reminder that the barter and compromise process has yet to run its course. The governor's agenda for a healthy economy has always included lowering power costs, regulatory reform, enhanced governmental efficiency and welfare reform, not just tax reduction. He may have some bartering of his own in mind. Time will tell.

John Frary of Farmington is a former congressional candidate and retired history professor, a board member of Maine Taxpayers United and publisher of www.fraryhomecompanion.com. Email to jfrary8070@aol.com

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