Post on 05-Jan-2016
LD 1: Tax Reform For Maine?
_________________________________________
Darcy Rollins, Policy AnalystNew England Public Policy Center
Presentation to the Connecticut Legislative Program Review and
Investigations Committee
October 26, 2005
Presentation Road Map
• Climate behind recent tax law• LD1: Key Issues and Analysis
1. Competitiveness2. Education Finance3. Equity4. Adequacy
• Conclusions
LD1 Elements
1. Spending limits 2. Increased state aid for education3. Targeted property tax relief
The BIG Issues
• Competitiveness: The impact of the tax system on economic development
• Adequacy: The ability of the revenue system to meet fiscal need
• Equity: the fairness of the tax system, adherence to ability to pay principles
• School Finance
Presentation Road Map
• LD-1 Overview• Key Issues and Analysis
– Competitiveness– Education Finance– Equity– Adequacy
• Conclusions
Issue: Competitiveness
Source: Measures of Growth, 2005
Income Tax Burden as a Percent of Income in the Largest Cities of New England and Average Income Tax Burden, Family of Four, 2003
Source: Tax Rates and Tax Burdens In The District of Columbia -A Nationwide Comparison, 2003
Issue: Competitiveness
LD1 Response: Spending Limits
When Maine is ranked in the top 1/3rd nationally on tax burden:
(spending) “…may not exceed … the prior year multiplied by one plus the average real personal income growth rate, but not more than 2.75%, plus 10-year average population growth.
When ranked in the 2nd 1/3rd:
(spending) “…may not exceed … average real personal income growth rate plus 10-year average population growth plus forecasted inflation.
Presentation Road Map
• LD-1 Overview• Key Issues and Analysis
– Competitiveness– Education Finance– Equity– Adequacy
• Conclusions
Issue: Education Finance
Source: Maine Department of Education
$-
$100.0
$200.0
$300.0
$400.0
$500.0
$600.0
$700.0
$800.0
94 95 96 97 98 99 2000 2001 2002 2003 2004 2005
Fiscal years
Mill
ions
State Funding
Local Required
LocalAdditional
TeacherRetirement
State and Local Funds for Education, General Purpose Aid, 1994-2005
LD1 Response: Increased State Funding
Phase-in of state commitment:– 50% state share in FY06– 55% state share by FY08
Insurance– Mil rates for education limited– Funding formula reformed
Presentation Road Map
• LD-1 Overview• Key Issues and Analysis
– Competitiveness– Education Finance– Equity– Adequacy
• Conclusions
7.40%
6.00%
3.40%
4.70%
11% 11%
10%10%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
1999-2000 2000-2001 2001-2002 2002-2003year
per
cen
t ch
ang
e
Per CapitaIncome
House Price
Source: Maine State Housing Authority and the Bureau of Economic Analysis
Issue: EquityPercent Change in House Prices and Per Capita Income, Portland MSA,
1990-2003
LD1 Response:Targeted Tax Relief
Expanded circuit breaker program income eligibility, increased credit amount
Homestead exemption increased– $13,000 of value of permanent residence
(was $7,000)– 50% of the exemption reimbursed by the
state
Presentation Road Map
• LD-1 Overview• Key Issues and Analysis
– Competitiveness– Education Finance– Equity– Adequacy
• Conclusions
Issue: Adequacy
(1=highest) Maine’s Fiscal Capacity Ranking
Maine’s Fiscal Need Ranking
Maine’s Fiscal Comfort Ranking
1987 22 47 181994 43 49 241996 42 49 301997 27 49 171999 36 48 24
Source: Tannenwald, Robert and Nicholas Turner. Interstate Fiscal Disparity in State Fiscal Year 1999. Public Policy Discussion Paper No. 04-9. Federal Reserve Bank of Boston. December 2004.
Presentation Road Map
• LD-1 Overview• Key Issues and Analysis
– Competitiveness– Education Finance– Equity– Adequacy
• Conclusions
LD1: Tax Reform, Relief or Not?
“This tax relief plan is bold, historic, comprehensive and bi-partisan” - Governor
“This plan is not perfect. But this plan is what is possible” – State Representative
“It is important…to recognize that this is not tax reform” – State Representative
The Continuing Saga
Maine Heritage Policy Center – Tax Payer Bill of Rights Ballot initiative
LD 1595 (Tabled)– Expand the sales tax base, creates a 6% flat tax rate
in Maine
Governor’s proposal– Decrease top rate of income tax, expand EIC, remove
business property & equipment tax
Grow Smart Maine - Brookings Institution – study of how to make Maine more economically
competitive
New England Public Policy Center
http://www.bos.frb.org/economic/neppc/