Grow sales tax, shrink income tax, state officials advised
By Victoria Wallack
State House News Service
AUGUSTA (Oct 10, 2007): A nationally known economic journalist and business forecaster – Knight Kiplinger of The Kiplinger Letter – told a crowd of municipal officials last week the state needs to increase or broaden its sales tax to lower income taxes and redirect state spending so investments can be made to grow the economy in Maine.
Lower taxes on earnings and savings and “tax high living,” he said, particularly on visitors – “People like me, from away.”
Kiplinger also suggested raising the property tax to capture more revenue on Maine’s high number of vacation homes.
“Jack up all the property tax rates,” he said, but protect Mainers by increasing exemptions given through the state’s Homestead program. Maine has one of the highest percentages of second homes in the nation, and 70 percent of them are owned by out-of-staters.
“The goal is to lower the tax burden on the citizens of Maine,” he said.
Kiplinger, who is editor and chief of the oldest economic newsletter in the country, was the lunch speaker at the annual Maine Municipal Association convention in Augusta last Wednesday and was generally upbeat about the state.
He praised its low crime rate and natural beauty and noted its influx of new residents from other parts of the country, who tend to be older, higher educated and with higher incomes.
The state’s economy will grow as the result of small businesses, and could make a name for itself in high-value agriculture, including organic foods and aquaculture, and alternative fuels.
Maine also may fare better than the rest of the county in the looming national economic slowdown, which Kiplinger believes will not be a full-blown recession.
“Maine didn’t experience as much overbuilding and real estate speculation,” as the rest of the country, he said, and therefore should not be hit as hard by the collapse in the housing and lending market.
But the state needs to do more to lower its tax burden, particularly income and property taxes, and cut spending in areas like K-12 education and health care to reinvest in research and development, higher education and tax incentives for new businesses.
With health care and education consuming nearly 80 percent of the state budget, he said, there’s only 20 percent left for “everything else.”
“That everything else includes things vital to Maine’s prosperity,” said Kiplinger, who referred often to statistics found in the Brookings Institution report on Maine’s prosperity, released last fall.
He supported many of the report’s recommendations, including increasing the lodging tax to pay for other investments because the tax is paid by non-residents. Kiplinger said the lodging tax, currently at 7 percent, should be at least 8 percent, or even higher.
“I don’t think this would dampen tourism at all,” he said. “Maine is unique. Don’t sell yourself short.”
The state also needs to face up to its “well deserved” reputation as a high cost state for business and it’s national ranking as the highest taxed state in the country as a percentage of income.
“A big cut in your corporate and personal income taxes,” paid for though an increase in consumption or sales taxes, would go a long way to sending the message that Maine’s business climate is improving, he said. “You probably need to do something dramatic to get national attention.”
Kiplinger was in essence supporting a plan pushed by the Legislature’s Taxation Committee earlier this year, but killed in the last days of session, that would have broadened the sales tax, increased the lodging tax and decreased the income tax.
Laurie Lachance, head of the Maine Development Foundation, who was the state economist in the King administration, also has spoken in support of the tax rebalancing plan, saying income taxes are a key leverage point for business decision makers.
Gov. John Baldacci didn’t support the plan, saying he wanted to do more than simply shift burden. His opposition, coupled with a massive lobbying effort by business and tourism groups, led to the proposal’s demise in June.
Kiplinger said along with lowering its income tax rate, the state needs to refocus state spending. He said he was surprised by the state’s high percentage of residents on Medicaid given that the state’s poverty rate is slightly less than the national average. The latest statistics show Maine’s poverty rate at 11.5 percent compared to the national average of 12.5 percent, but it ranks at or near the top in terms of the percentage of its population enrolled in Medicaid.
“I wonder whether the state can really afford it,” he said.
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