Here, I’d like to discuss the so-called Gang of Eleven’s LD 1496, designated “An Act to Modernize and Simplify the Tax Code.”
This bill should actually be named “An Act to Increase Tax Revenues While Sponsors Croon ‘Don’t Tax You, Don’t Tax Me, Tax the One Behind That Tree.’”
Why? Referring to the current version of the bill, we find this introduction:
This bill would overhaul Maine’s tax code. It is designed to raise a larger share of tax revenues from nonresidents, while relieving the tax burden on year-round residents. The bill reduces Maine state income taxes, corporate income taxes and homestead property taxes; moderates the regressivity of sales and property taxes on lower-income households; stabilizes tax revenues; and creates a more attractive tax environment for individuals and businesses that locate in Maine.
Because nonresidents share many of the benefits of Maine’s communities, roads, hospitals, environment and quality of life while they are here, while avoiding many of the taxes paid by residents only, the reforms also reflect a fairer apportionment of government costs.
The bill accomplishes its objectives by increasing revenues from sales and excise taxes, which are paid by both residents and nonresidents in proportion to the time they spend here, and by collecting less from income taxes and homestead property taxes, which are paid almost entirely by residents.
Let’s set aside for the moment that picking on visitors from out of state, and other ‘non- credentialed’ partial year residents, could be seen as xenophobia. It’s interesting to contrast this bill to that described as comprehensive immigration reform in Congress, and especially the charges leveled against those who take issue with the reform.
I’m not here to defend or oppose special tax treatment of visitors or partial year residents, per se. Instead, I think it’s a good idea to take a look at the specifics of the situation, so that we are all informed on the question.
To provide a frame of reference, examine this very useful monthly summary of state finances from Maine’s Office of Fiscal and Program Review.
For purposes of this discussion, we’ll summarize. The overwhelming majority of Maine’s General Fund (GF) expenditures are for Health and Human Services (HHS) and Education. The former amounts to 35 percent of the total, and the latter to 37 percent. That’s nearly three quarters of total GF spending.
HHS spending is for welfare and related ‘entitlements.’ Education spending is for support of public schools and state operated higher education institutions.
We’re pretty confident that visitors (tourists) and partial year residents don’t ‘benefit’ from either of these spending categories. Which means they aren’t a burden to the state when it comes to funding these budget lines.
Now let’s look at the revenue side. Sales and use tax is about 35 percent of GF revenues, and individual income tax is about 47 percent of GF revenue.
Simply put, visitors ‘from away’ and those who live elsewhere for half the year are no burden on our costliest primary services, and in all likelihood, therefore contribute more than their ‘fair share’ towards revenues via the sales tax and meal and lodging taxes. Claiming that they aren’t paying their share for the ‘quality of life’ they enjoy when here is balderdash. Life’s quality derives from God and other factors, but not government.
Consider local level circumstances. In most municipal settings, school spending is far and away the largest component of spending, running in the range of 60 percent of local budgets, or even more.
Here again, it’s clear that visitors/tourists and partial year residents are not part of this cost burden. Partial year residents pay property taxes (assuming they own property) as if they lived here all year. It seems then, that they are a gift.
We haven’t touched on ‘tourists’ who are Maine residents visiting another Maine location, as we often have. And the fact that the majority of ‘second home owners’ are also Maine residents who own camps. “Exporting” tax burden to these folks is like exporting tax burden to your neighbor across the street. It’s a nonsensical concept.
So we would conclude that this bill passage:
“Because nonresidents share many of the benefits of Maine’s communities, roads, hospitals, environment and quality of life while they are here, while avoiding many of the taxes paid by residents only, the reforms also reflect a fairer apportionment of government costs”.
is so much malarkey.
Or to cite a favorite quote: “A lot of stuff that passes for food for thought is nothing but the baloney of propaganda.”
And this passage is another slice of the same baloney: “…and homestead property taxes, which are paid almost entirely by residents.”
Property taxes are paid ‘entirely’ by property owners, whether they are residents or not. The word ‘homestead’ looks to be used here solely to garner emotional support for the bill. Imagine someone who never comes from out of state to use the property; or comes for a few weeks or a few months at most, yet pays a full property tax bill. Are they worthy of our disdain, or worthy of our thanks?
Further, we don’t see “the benefits of Maine’s communities and hospitals” as creations of government. As to roads, I expect anyone not a full time resident pays at least their fair share of the fuel tax. For those with property here, or perhaps two properties, they are paying at least their fair share of locally funded road paving, and in all likelihood, more than that.
Bill language above says that nonresidents avoid “many of the taxes paid by residents only,” but that just might be an overstatement. Claiming the bill “stabilizes tax revenues” is even more suspect, as it always is. In the final analysis, most tax revenues are proportional to incomes in one way or another. If we keep ignoring the importance of a healthy economy, nothing will ‘stabilize’ tax revenues except raising rates, and taxing more things.
Or going to the municipal model, where property tax rates are set anew every year to yield whatever towns want in the way of revenue. Have you ever heard a municipal government wail about the need to ‘stabilize’ their tax revenues?
So I assert that appealing to local prejudices against ‘non-residents,’ at least tax-wise, is quite indefensible. Given our dependence on tourism, readers can decide whether it makes political sense or not. We’re certain the vast majority of elected officials believe they have nothing to do with spending increases and tax burdens. Instead, it’s all the fault of bogeymen under your bed or behind that tree.
Their beliefs align nicely with citizen convictions that there is a tooth fairy, and free lunches to boot.
One more thing: LD 1496 broadly increases the tax “base,” by subjecting nearly everything to the sales tax, and eliminating virtually all deductions from income.
Which brings us to a larger point. Some time ago, I concluded there are two distinct schools of thought regarding government’s role in our lives. Let me explain.
The first school of thought holds that Government is the highest expression of humanity. To this group, Government is good; more Government is better; and all-pervasive, all-encompassing, all-consuming Government is best. They believe that private property is a crime and that capitalism is evil. They’d outlaw both, and replace the latter if only they could find an alternative to finance their coercive utopia. In their view, there is no such thing as a ‘self-made’ man or woman.
Since there is no higher good than Government, every transaction, every possession, every fruit of one’s labors is considered to be in the service of Government, and should therefore be taxed, if not outright confiscated, to support the “greater good,” or the “common good,” if you prefer. Individuals and individualism are by definition selfish, and in conflict with societal perfection.
The American Dream? Equality of opportunity? Remnants of the old white man phase of our history. Equality of opportunity has been superseded by equality of outcome, and the American Dream is a collective vision, not the wish of an individual for a better life earned through applying one’s self.
The default position is that everything should be taxed, and hence, when something is excluded from taxation, like health-care, or food, it’s an ‘exemption,’ a gift from the governing elite.
The second school of thought holds that liberty is the highest expression of humanity. To this group, Government is necessary to protect us from enemies foreign and domestic, and to establish ordered society, but it should be limited, constrained, and enumerated in its powers.
There is no higher good than one’s individual right to life, liberty, and the pursuit of happiness. Private property and the right to the fruits of one’s labors are sacred concepts. Individuals can excel and lift themselves above the ordinary, and it is the freedom and opportunity for individuals to do so that defines the American dream. Capitalism embodies these principles in economic form.
The default position for this group is that property and income and transactions are first the purview of the individuals involved, but that a just and proper government must of necessity lay a tax upon these things to fund its enumerated powers. The things that are taxed, then, are exemptions from the default position. Or exactly the opposite of the first school of thought.
This seems like a fine time to remind ourselves of the opening and closing words of the Declaration of Independence:
When in the Course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature’s God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.
We hold these truths to be self-evident, that all men are created equal; that they are endowed by their Creator with certain unalienable rights; that among these are Life, Liberty, and the pursuit of Happiness; that, to secure these rights, governments are instituted among Men, deriving their just powers from the consent of the governed; that whenever any form of government becomes destructive of these ends, it is the right of the people to alter or to abolish it, and to institute new government, laying its foundation on such principles, and organizing its powers in such form, as to them shall seem most likely to effect their safety and happiness.
And for the support of this declaration, with a firm reliance on the protection of Divine Providence, we mutually pledge to each other our Lives, our Fortunes, and our sacred Honor.
Which leaves us with this fundamental question: Does the government we have protect and encourage our Creator given rights to life, liberty, and the pursuit of happiness, or does it do just the opposite?
Pem Schaeffer is a retired Business Development Leader who spent his career in defense related high technology. He blogs at The Other Side of Brunswick. Contact him at email@example.com. Or buy his lunch at the next MHPC monthly affair in Portland.