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Paul Davis

Tax Reform
By Senator Paul T. Davis
Feb 7, 2005 - 10:02:00 AM

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The tax reform legislation pushed through the Legislature in early January should have been a start towards true tax reform. Regrettably, it doesn’t appear to be anything remotely like what taxpayers are expecting as tax relief. In the final tally, it will add up to an elaborate bait-and-switch tactic to fool the casual observer.

It is a bill, in my opinion, that hurts rural Maine and ultimately demonstrates no benefit for the state as a whole for the long term.

The vote on the legislation was barely scheduled before supporters began cautioning their constituents not to expect too much from “tax reform.”

In actual figures, the Maine Municipal Association calculated 184 communities could see a benefit from this bill, while 302 communities will see an increase in taxes or no benefit at all. That doesn’t add up to tax relief in my view, especially when the towns in that majority are among our smallest and poorest.

Taxpayers won’t be long in seeing this “significant” legislation as just another tax shift scheme from Augusta and a measure that contributes more energy to the concept of two Maines.

This bill will not give voters the 55% of education funding they asked for in June 2004.  Instead of finding a way to fund that 55 % education subsidy, this legislation allows another delay, not paying the bill fully for another four years and filling the gaps with short-term, transitional money borrowed from the future.

Basing that payout on the new funding model of Essential Programs and Services, the full share may never be funded. The 55 % state share was based on the General Purpose Aid to education based on actual expenditures for school operations. With EPS, the state will determine what is needed to operate our schools. The EPS model will not be funded fully in the first two years, shorting our rural districts, despite transitional funds borrowed from future budgets. The EPS model also does not address the striking differences between the costs of running our rural regional schools and our urban neighborhood schools and their vastly different transportation costs.

“Tax reform” will fund EPS at 84% in the first two years even with $70 million in transitional funds can’t avoid poorer districts to lose money and give much more to the rich urban districts.

You were told we’ve adopted spending caps and limits for government at all historic first. But in the end, it is meaningless when a simple majority can implement new spending measures. The tax reform legislation made a good effort at telling municipalities and counties how they should control spending, but failed to include all state spending programs.

At the state level, there might as well be no spending caps when special funds are exempted. State spending will actually be increasing at nearly 7% twice the 3.5% rate of growth that the Governor is claiming, and more than twice the rate of inflation, according to information released by the Maine Heritage Policy Center.

This tax reform legislation applies a cap only to general fund expenditures. It does not include $70 million applied to the implementation of EPS as transitional funding. It does not include the Business Equipment Tax Reimbursement (BETR) “revenue adjustment” of $155 million. It doesn’t address the expansion of the Circuit Breaker program to the tune of $75 million or to Maine’s share of federal Medicaid funding, the Highway Fund or other “special revenues.” Ultimately the exemptions to the spending cap will exempt more than $300 million from any limitations.

The homestead exemption may double, but municipalities are left to pay half the bill. This new scheme limits the state’s obligation to half of the new $13,000 exemption when the original $7,000 exemption was fully reimbursable. How many towns will be raising taxes to give itself a tax rebate?

The Maine taxpayer is not stupid. We don’t need to tell them what is apparent:

This bill was enacted politically, not practically. When the dust settles the public will apply that practical measure for us. They will know that a “savings” determined in Augusta is just another euphemism for picking a different pocket and not always one with money in it.

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