January 11, 2008
Can "prosperity" plan rescue Maine's economy?

By Rep. John Robinson

New buzzwords are heard with increasing frequency in the marbled corridors of the State House. Streamlining government and “prosperity” are two of the most common terms. Both are shorthand for the growing realization that Maine’s economy is in trouble. And trouble for the economy means trouble in Augusta as tax revenues decline.

The decline is now under way. We have a $95-million budget deficit, and we’re only halfway through the first year of a two-year budget cycle. The governor has promised to fill that gap without raising taxes. His supplemental budget must first run the gauntlet in the Legislature, however, where his social service cuts are already raising liberal eyebrows. But he knows, and we know, that tougher times loom if the economy slides into recession.

Economist Charles Colgan, who teaches at the University of Southern Maine, gave a sobering talk this month to Portland-area business executives. He warned that Maine’s economy is on “thin ice,” as a number of factors converge to create a sense of foreboding – high energy prices, the housing slump, rising unemployment and the mortgage crisis. “The ice is cracking, so step gingerly,” he remarked. Colgan forecasts that a mild recession, such as the downturn of 2001, would see 6,000 jobs lost in Maine. But if a recession turned severe, he said, “all bets are off.”

Already this year, sales taxes are down $6.3 million. Maine families are curtailing purchases of things they can forego in order to pay skyrocketing bills for heating oil, which is not taxed. Corporate income tax revenues are $7.5 million below projections. Maine’s cigarette tax is short of expectations by $6 million so far, now that the $2-per-pack tax is prompting smokers to quit, cut back or simply buy their “smokes” in New Hampshire. Even so, there is talk in the State House that the governor might propose another dollar increase in the cigarette tax, bringing it to $3, to pay for his Dirigo Health program, currently funded by a tax on health insurance premiums.

Against this ominous backdrop, the Legislature’s so-called Prosperity Committee recently issued a report on ways to keep Maine’s economy viable. I was gratified to discover that two bills I sponsored found their way into the report – or at least the ideas in those bills.

The first bill is LD 1434, An Act to Lower Maine Income Tax Rates. I offered this bill on the grounds that Maine’s high income tax rate – 8.5 percent – is one of the greatest obstacles to economic development. High taxes penalize productivity and stifle job growth. Consequently, many of our most highly educated young people must leave Maine to find rewarding work.

My bill would have reduced the top two income tax rates over a four-year period, beginning with tax year 2007. The initial decreases would have gone from 8.5 percent and 7 percent to 8 percent and 6.5 percent. Rates would have progressively fallen to where, by 2010, Maine’s highest income tax rate would be 5 percent.
Unfortunately, this bill was killed by the Taxation Committee before it could even come up for a vote by the Legislature. But the principles of the bill live on in the Prosperity Committee’s report. (That report, incidentally, was endorsed 16-0 by the bipartisan group of legislators who comprised the committee. It provides a blueprint to guide the state to a healthier economy and a sustainable spending rate for state government.)

The committee report, entitled “Time for Change,” recommends gradually reducing Maine’s top income tax rate to 4.5 percent. In a commentary on taxation, the authors explained their rationale: “Maine’s high ranking on national tax burden lists is frequently cited as one of the reasons businesses are discouraged from relocating to the state. Maine’s combined state and local tax burden of 13 percent was the fourth-highest in the nation in 2004, making it critical that Maine reduce its tax burden and increase the average personal income if it is to achieve sustainable economic growth, improve its ability to compete with neighboring New England states and spur business and population growth.”

My second idea adopted by the Prosperity panel calls for creation of a government efficiency commission to help streamline and modernize Maine government. A group of nine private sector experts in financing, government operations and business would be charged with recommending spending reductions and even a more fundamental restructuring of government.

Under my plan, and now in the official prosperity report, any recommendations from this efficiency commission would all be voted up or down by the Legislature – either they all pass or they all fail. My model was the federal Base Realignment and Closure (BRAC) Commission, which works the same way: Congress votes to close all bases on the list, or none of them.

The prosperity report contains a bill that would, if passed by the Legislature, formalize the recommendations and create the Government Efficiency Commission to identify government expenditures that can be eliminated or reduced. These actions are good for Maine’s government, for our economy and for our future.

State Rep. John Robinson (R-Raymond) serves on the Legislature’s Appropriations and Financial Affairs Committee

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