By Rep. Cynthia Dill

D-Cape Elizabeth

Before returning to session, the Legislature received the sobering news that revenue anticipated and budgeted for fiscal years 2008 and 2009 was going to fall $95 million short. As national and state economies falter under the slumping housing market, a credit crunch, the financial black hole that is the Iraq war and the exorbitant cost of fuel, the repercussions are being felt nationwide.

 Over the last two months, the Maine Legislature has painstakingly combed through state government to find savings to fill the gap. In many cases, those savings could be more accurately described as nickel-and-diming state programs and services to a point just short of eliminating critical support for Maine’s children, elderly, disabled, homeless and other vulnerable populations.

 On Feb. 25, Maine’s Revenue Forecasting Committee re-projected revenue even further downward. This added shortfall, coupled with $20-40 million in cuts to federal Medicaid funding, brings the total shortfall to approximately $200 million. This gaping wound will certainly not be fixed by cutting deeper or by applying a band-aid. It is imperative that we re-envision the way Maine raises and spends revenue.

Tax revenue is essential to pay for government services such as roads, bridges, education and the safety net for the most vulnerable Mainers. Our government has the responsibility of investing the money it collects from our citizens in a way that maximizes the benefit to the greater good.

Among the most popular myths about state revenue is that Maine taxes its citizens more than any other state. When you examine the total state tax burden – independent of federal, county and municipal taxes, which includes property tax – Maine ranks 19^th in the nation. Certainly this number is high, but it’s not at the top of the pack.

However, within the state tax burden, Maine does have one of the highest income tax rates, ranked seventh in the nation. Because Maine is a low wage state, a high income tax rate is an especially hard hitting way to generate substantial state revenue. One of the biggest factors in our “tax problem” is our income problem.

In contrast to Maine’s relatively high income tax, the state’s sales tax base looks like Swiss cheese. Of the 168 categories of items other states apply sales taxes to, Maine taxes only 24. With revenue for the sales tax subject to the economic whims of a handful of industries, when these industries experience down-turns, the state’s revenue also plummets, and critical services get cut. This makes for a volatile revenue stream and likewise unstable and unpredictable fiscal planning.

In my opinion, the best way to maximize the public benefit from taxes is to reduce our income and capital gains tax rates to encourage investment and economic development, while broadening the sales tax base to stabilize revenue streams. Study after study, including the revered Brookings Report, recommend this course of action in order to bring Maine’s economy into the 21^st Century and obtain prosperity.

In the 2007 session, the Legislature was on the brink of passing a comprehensive tax reform package that would have reduced the tax burden on Mainers by $140 million while at the same time stabilizing revenue from the state’s tax base. The House passed it by a comfortable margin. Unfortunately, in the 11^th hour, it failed by one vote in the Senate.

One of the reasons it was ultimately defeated was because of some monolithic myths about state spending. Chief among them is the misconception that state spending is bloated and has increased since Gov. John Baldacci took office. While it is true that the actual number of dollars has increased, most of that money – $800 million – has gone to local education aid to meet the requirement that the state fund 55 percent of education costs, which Maine voters demanded by popular vote in 2004. Almost half of the current state budget is dedicated to education spending.

If you remove education funding, the rest of the budget experienced negative growth in the last budget cycle. Many state agencies and programs have grown at rates below inflation, been flat-funded or cut, particularly Health and Human Services. Growth in Maine’s general, highway and other state funds has remained relatively constant as a percentage of Maine’s total personal income.

This is not to say that we shouldn’t continue looking for ways to streamline state spending. We absolutely should. A 2006 report by the non-partisan Office of Program Evaluation and Government Accountability reveals we invest hundreds of millions of dollars into economic development programs without performance evaluation standards. Basic measures of accountability would ensure we get high returns on the precious state resources we direct toward economic development programs.

Given the instability of our state budget from year to year, we need to stabilize our revenue sources and create buffers to blunt the impact of future economic downturns. We need to undertake comprehensive tax reform. This issue continues to be my top priority as a legislator.

Please join me at 7 p.m. on March 13 in the Cape Elizabeth Town Hall for a panel discussion on tax reform. Distinguished representatives of various constituencies and political parties will be present to answer questions and present information about what we can do together to get real reform done this year and be better prepared for the future.