Maine is a state with a high tax burden.  The combination of a relatively high income tax, a relatively high property tax, and a significant sales tax places us in the unenviable position toward the top of all states on the basis of tax burden in relation to personal income.  We Mainers spend 13 percent of our incomes on state and local taxes compared to a U.S. average of 10.7 percent, making us fourth highest in the nation. 

This conclusion has been documented by several groups who have analyzed the situation over the past few years, the Maine Heritage Foundation, a conservative think tank, the Maine Public Spending Research Group, a non-partisan think tank (of which I am a member), and most recently the Brookings Report on the Maine economy.

We have engaged in endless debates about the significance of this tax burden.  Clearly the burden of Maine’s high property tax is an issue for many in the state.  Concern about the property tax, the principal way localities fund K-12 education, has driven two state wide ballot initiatives in the past four years.  Nearly as significant but less often discussed is Maine’s high personal income tax.  Not only is Maine’s tax rate high at 8.5 percent, but one reaches the top rate very quickly, at a taxable income of just $18,250 for an individual or $36,550 for those filing jointly.  As Brookings comments:  “That rate combined with the large number of Mainers it affects clearly prompts widespread complaint – complaint that may be sending negative signals to retirees, relocating workers, and high-income individuals, potentially discouraging residency.”  Many people we associate as Mainers, Stephen King comes to mind, probably are not actually residents of Maine, given our income tax structure.  Kit St. John of the Maine Economic Policy Center, a liberal think tank, often says the problem is not tax burden, it is the need to raise personal income.  If personal income grows, the proportion of our income we have to spend on taxes would decline. In this sense, St. John is half right.

What is refreshing about the Brookings approach is that their independent analysis suggested that the state needed to both increase personal income through selective investments and reduce Maine’s tax burden to ensure the state’s long-term economic viability.  Brookings has moved the debate from whether or not tax burden is a problem to a debate about what needs to be done to reduce it.

Brookings had two principal recommendations to reduce the tax burden:  school consolidation and an overall reduction in expenditures for state government (on the order of 2.5 to 3 percent).  Both have the potential for significant savings.

Last week Alan Caron, president of Grow Smart, the organization that funded the Brookings Report, issued a statement that questioned why Governor Baldacci had not taken more initiative to reduce the cost of state government as recommended by the Brookings Report.  While there has been much comment about the Governor’s school consolidation proposal, the Governor has not moved to reduce state government expenditure.  Brookings estimated that $60 to $100 million in savings annually could be achieved in this area.  This is as significant as the savings from school consolidation.  (The Governor claims a higher figure for consolidation because he includes reducing teachers in his estimate.)

To achieve savings of this magnitude Brookings recommends empowering a Maine Government Efficiency Commission “to review the structure and operations of state government and propose specific reforms to eliminate duplication and inefficiency”.  This is not a glamorous or popular job, but it is an important one.

I am surprised the Governor has not moved more aggressively in this area.  He has been bold in his school consolidation plan, which is largely local in focus.  However, closer to home in state government he has only scratched the surface on cost reduction.

In general, the Governor has supported the recommendations of the Brookings Report.  We need to hear from him on this important aspect of the Brookings Plan.  If local school districts are going to feel the pain of consolidation, then state government should be subjected to similar scrutiny.  It is both fair and necessary for Maine’s future.