ISSUES ON THE JUNE 8TH BALLOT - Bonds & Q. #1

From the Maine Heritage Policy Center (MHPC) News Center:

At a May 18 Bangor press conference, MHPC released a report confirming Maine's pension and retiree health care systems for government employees is underfunded by nearly $5.1 billion-among the highest levels in the country.

The report, "More Bonds? Not with Maine's Ballooning Unfunded Retiree Liabilities," written by Chief Economist Scott Moody, explains that Maine's pension liability as a percent of Gross Domestic Product (GDP) is the eight highest in the nation and the second highest in New England.

To resolve this multi-billion dollar burden of unfunded past promises, lawmakers must either cut spending and entitlements benefits, or raise taxes. The report also states that, "Before any new debt is approved, Mainers should insist that legislators deal with these ballooning unfunded retiree liabilities first and foremost."


On the June 8 ballot, Mainers will vote on four bond questions totaling more than $108 million in new debt. Its important Maine voters understand the full scope of Maine's public debt nightmare before heading to the polls.

"Tax Reform" plan an unconstitutional jobs killer (This is Q. #1 on the ballot)

Last week, MHPC held a press conference to release a new study, "Tax Reform Bill is Too Flawed to Become Law," confirming the so-called tax reform plan, Question 1 on the June 8 ballot, burdens Mainers with a net tax increase, and is unconstitutional and would likely be struck down in court.

The study, written by Chief Economist Scott Moody and staff attorney David Crocker, rebukes a series of myths spread by supporters of the tax reform plan (LD 1495):

Myth #1:
LD 1495 will lower the tax burden on Mainers.

Fact:
The tax reform bill is a net tax increase. "Exporting" taxes to tourists is more hope than reality.

LD 1495's supporters assume businesses will pass the cost of higher sales tax onto tourists. This will require businesses to raise prices on all consumers, whether from Maine or from away. Economists William G. Gale and Kim Reuben confirmed this in a July 2006 study, writing, "Broadly speaking, tax exporting is a 'beggar thy neighbor' policy; all localities would be better off in the absence of such policies."

Myth #2:
The income tax rate will fall to 6.5% from 8.5%.

Fact:
The 6.5% income tax rate is an illusion. Most Mainers will pay at an 8% rate, not 6.5%.

The phase-out to the household tax credit, which takes the place of the deductions and exemptions eliminated under LD 1495, actually results in an 8% tax rate for many Maine taxpayers.

Myth #3:
A lower income tax is worth the price of higher sales tax.

Fact:
The sales tax is a small business and jobs killer. Maine needs lower overall taxes, not a tax shift.

The sales tax expansion also taxes business input purchases, leading to "tax pyramiding," which is paying a tax on a tax. For example, a consumer buying a loaf of bread is paying the sales tax for the purchase of the bread, as well as the tax on flour the baker must factor into the pricing of the bread he produces. High compliance costs, particularly among Maine's small businesses, would also require higher prices. Business owners would be forced to either cut staff or reduce wages. For the economy as a whole, this would mean fewer jobs and lower pay.

Myth #4:
LD 1495's limitation of the "household credit" to Maine residents is constitutional.

Fact:
This limitation violates the U.S. Constitution on several counts.

LD 1495 violates the Commerce Clause by burdening interstate commerce by limiting the household credit to Maine residents, creating a tax penalty for out-of-state employees who earn a living in Maine. The tax reform plan violates the Privileges and Immunities Clause because it imposes a higher tax rate on non-residents than it does on residents. The Equal Protection Clause is violated because LD 1495 disadvantages taxpayers who move or return to Maine by preventing them from using the household credit during the first tax year of their residency.