Battle looms over auto excise tax

Voters will confront a host of citizens’ initiatives when they go to the polls in November. We’ll hear quite a bit about each referendum item as Election Day gets closer; but one of them is already attracting attention – the initiative to cut the auto excise tax by roughly 50 percent.

It’s too soon to predict that this initiative will pass. You can be sure that lots of money will flow into advertising campaigns on both sides. It’s safe to assume that the Maine Municipal Association (MMA) will oppose a cut that would extract about $80 million from municipal budgets. They may try to convince voters that towns would cover the gap with higher property taxes or cuts to critical services. It’s also a sure bet that advocates of tax relief will get their story out. But one thing is absolutely certain: The “car tax” is the most hated tax in the state.

Think about it. Property taxes are usually hidden inside mortgage payments and income taxes are withheld from paychecks, so the sting seems less severe. Only with the auto excise tax does a Maine resident have to stand at a clerk’s counter in a town hall and physically write out a check – usually a big check. For a vehicle with a $28,000 sticker price, for example, this tax totals $2,044 for the first five years.

The tax is structured to extract the maximum amount of money. With new cars, you are taxed on the sticker price, not on the price you actually pay. There might be people who pay the full manufacturer’s suggested retail price, but most buyers negotiate some kind of discount. The tax would generate less resentment if it were based on the actual sales price.

Twenty-two states and the District of Columbia don’t even have an auto excise tax. Maine has the seventh-highest one in the country. It ranges from 2.4 percent of a vehicle’s value in the first year to 1.8 percent the second year, declining annually until it bottoms out at 0.4 percent for the sixth and subsequent years.

Under the proposed tax cut, the rate would fall to 1.2 percent in the first year of registration, 0.8 percent in the second and 0.4 percent for the third and all following years. The initiative also eliminates the sales tax and the first three years of excise tax on hybrid, electric and other high-tech and high-mileage vehicles. According to the Maine Heritage Policy Center (MHPC), which authored the initiative, the change would put newer, safer and more fuel-efficient vehicles within the budgets of thousands more Maine families.

Mainers pay nearly $208 million a year in auto excise taxes, providing municipalities with a small percentage of their operating budgets. The money stays with the municipalities, where it ostensibly is targeted to road repairs. In practice, however, it often goes into a town’s general fund instead of being “fenced off” for road work.

Opponents of the tax argue that it is regressive, hitting poor and elderly residents particularly hard. It also hurts new car sales, they say; tax-averse drivers keep their vehicles on the road as long as possible.

One other major factor will feature prominently in the debate. In June 2004, voters rejected an initiative to cap property taxes at 1 percent in favor of a competing referendum by the MMA. That measure declared that if the state increased funding to cover 55 percent of local education, up from 44 percent, property taxes statewide would drop 15 percent.

The state kept its part of the deal. From 2004 to 2008, General Purpose Aid to education soared $840 million above and beyond the normal spending patterns, during a time of declining enrollments, low inflation and falling test scores. If we had banked that money instead, we’d have no budget crisis today.

Yet during those same four years, total local spending jumped $659 million, or 22 percent; and property taxes climbed $343 million, or 21 percent. Despite the massive increase in school funding from state taxpayers, property taxes and local spending skyrocketed much faster than inflation and people’s ability to pay.

Local governments and the MMA broke their word. Municipalities should have cut property taxes. That’s what Mainers voted for; and when they go to the polls in November, they might be looking for some restitution.

State Rep. Susan Austin (R-Gray) serves on the Legislature’s Business, Research and Economic Development Committee

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