Republican radio address

For the weekend of May 29-30, 2009

Greetings, this is Kathy Chase, State Representative from Wells. It is my honor to deliver the Republican response this week.

The battle of the budget is over in Augusta. State spending has been set for the next two years, unless adjustments are required later on. In the Legislature, attention is now turning to the remaining bills, such as LD 1088, an effort to overhaul Maine’s tax laws.

I’ll elaborate on the details in a moment; but basically it trims the income tax rate and expands the sales tax to a vast range of services, including car repairs, movie theaters and sporting events. The sales tax on meals and lodging would jump from 7 percent to 8.5 percent. Tax filers who itemize deductions will instead be given a household tax credit. That means no more deducting of mortgage interest or property taxes. Proponents of the bill claim that the total tax will rise for less than 20 percent of Maine residents. For the rest, the tax burden supposedly would fall.

As a member of the Taxation Committee, I have been closely involved with this bill since January. In the last Legislature, I worked on an earlier version, which went down to defeat. The current bill, like the last one, is called revenue neutral, because in theory the state will still collect the same amount of tax money. A less flattering description is lift-and-shift, meaning the state will lift some taxes and shift the balance by lowering others. One thing is clear. This tax reform does not reduce the state’s total tax burden. It restructures the tax code, and the results are by no means certain. The rule of unintended consequences could easily come into play, especially with the economy in turmoil.

A partisan battle is shaping up inside the State House. Democratic legislators favor this bill; their leaders in both chambers are co-sponsors. The primary sponsor, Representative John Piotti, is the leader of the House Democrats; and he is passionate about his cause. He believes that by broadening the sales tax to include services, the state’s revenue base will be sturdier and more resilient during economic downturns.

That’s a plausible argument; but the plan is certain to annoy the people paying the tax, not to mention the bookkeeping headaches it would create for the thousands of small businesses who would have to collect the tax and file reports with the state. That’s why 80 percent of small business owners oppose LD 1088, according to a poll by the National Federation of Independent Business. The Maine State Chamber of Commerce also has turned thumbs down. And a recent survey of 400 Maine adults by the Pan Atlantic Group indicates that the public rejects the plan by a two-to-one margin.

There’s a lack of trust in the people who control the Legislature – a suspicion that once they spread the sales tax to nearly every activity in the state, the majority party will raise the income tax again if tax revenues come up short. The Maine House has been run by the same party for 35 years and their record on taxes does not exactly inspire confidence.

Republicans have serious concerns with the proposal. We like the reduction of the top income tax rate to 6.5 percent. Our current rate of 8.5 percent is one of the highest in the country and it discourages business investment. Our own plan would gradually drop the top rate to 4.5 percent, well inside the American mainstream.

One of our major worries is the timing. The economic situation is too chaotic to embark on major tax surgery. Even though we just passed a two-year budget, there are fears that revenues could fall substantially below projections by the fall. If we can’t accurately forecast how much revenue the state will bring in next year under our current system, imagine trying to make that prediction under a new, untested system during this wild economic turbulence.

Let me highlight a few of the tax changes under this reform plan. Raising the meals and lodging tax from 7 percent to 8.5 percent would be a tough blow to restaurants and innkeepers already battered by the recession. It also would be tough on their customers, including many Mainers.

The plan also levies taxes on installation, repair and maintenance of all kinds of everyday items – from office equipment to shoes to firearms. The big one is car repair. In a poor state like Maine, the average car is seven or eight years old. Drivers are trying to keep them on the road as long as possible. Repairs are costly, and the last thing Mainers need right now is a sales tax on top of those big bills.

Entertainment and recreation would be taxed – movies, concerts, sporting events, water parks, historic sites, carnivals and even petting zoos. Sports and games, too – golf greens fees, ski lift tickets, bowling alleys, pool halls, tennis courts, swimming pools and even go-cart courses.

I could go on and on – dry cleaning, diaper services, interior decoration, boat mooring and moving services. The problem with these tax targets is that they would turn thousands of small business people into tax collectors for the state, complete with all the accounting headaches and hassles that would come with more complicated bookkeeping.

Maine’s tax burden needs to come down. But it should happen when the economy stabilizes, and it should make the system less complicated, not more. Stay tuned for a decision on this issue. The vote should come next week.

This is Kathy Chase. Thank you for listening.