A Brief Guide to Question 2 (Excise Tax Cut) on the November 2009 Ballot
What is the wording of Question 2 to go before voters?
“Do you want to cut the rate of the municipal excise tax by an average of 55% on motor vehicles less than six years old and exempt hybrid and other alternative-energy and highly fuel-efficient motor vehicles from sales tax and three years of excise tax?”
What does the bill do?
• Decreases the excise tax imposed on motor vehicles for the first year from 24 mills to 12 mills, for the second year from 17 1/2 mills to 8 mills and for the third year from 13 1/2 mills to 4 mills and imposes a 4 mills rate for the fourth and succeeding years.
• Exempts from the excise tax imposed on motor vehicles the first three model years of a hybrid gasolineelectric vehicle, a fuel-cell-fueled or hydrogen-fueled vehicle or a highly energy efficient vehicle that has a highway fuel economy estimate of at least 40 miles to the gallon. After the first three years, the rate of excise tax is the same as on other motor vehicles of the same age.
• Exempts from the sales tax 100% of the sale or lease price of a new hybrid gasoline-electric vehicle, a fuel-cell-fueled or hydrogen-fueled vehicle or a vehicle with a highway fuel economy estimate of at least 40 miles per gallon.
• Returns an average savings over the first five years of ownership of $800 for most cars and $3,000 for most hybrids.
Of all of Maine’s taxes, why target the excise tax?
• The tax is far too high. Only six other states have higher excise tax rates than Maine, and 22 states don’t have any vehicle excise tax at all.
• The tax is unfair. The vehicle excise tax is a regressive tax. In a January 2009, report, the liberal Maine Center for Economic Policy labeled the excise tax a regressive tax, meaning it takes “proportionally more from low-income households than from high-income households.” Furthermore, Maine’s vehicle excise tax is based on a vehicle’s M.S.R.P., or sticker price, not the actual purchase price. Mainers are required, therefore, to pay what amounts to a sales tax on money they did not spend. This provision has the effect of increasing the effective tax rate to well above the actual rate, making the tax even more regressive.
• The tax is extraordinarily burdensome. For those buying newer cars, the excise tax is a very heavy tax burden to deal with. The purchase of a new car with a sticker price of $22,000, for instance, requires an excise tax payment to the municipality, before the car can even be put on the road, of $528. For this same vehicle, the excise taxes alone would total more than $1700 over the first five years of ownership. This high cost of ownership has the effect of discouraging the purchase of newer vehicles by pricing tens of thousands of Mainers out of the market for them. Additionally, unlike the vehicle sales tax, which can be financed as part of the vehicle purchase and thereby turned into more affordable monthly payments, the excise tax must be paid in full at the time of purchase, which again presents for potential buyers a significant financial obstacle to the purchase of a newer car.
• The tax is non-exportable to out-of-state residents. The vehicle excise tax is one of the very few taxes in Maine that is paid for exclusively by Maine residents. Some percent of the state’s income taxes, sales taxes, property taxes, gas taxes and countless other taxes are paid for by those from out-of-state. By contrast, 100 percent of Maine’s vehicle excise tax is paid for by Maine residents.
Why should Maine businesses support the excise tax cut?
• The excise tax cut reduces the costs of production for businesses and puts more money in the hands of families, where it belongs. The Maine Municipal Association estimates that the excise tax cut could put $80 million back into the Maine economy, just the kind of significant economic stimulus that Maine needs.
Won’t cutting the excise tax simply result in a shift to property taxes?
• That depends on what the legislative bodies of Maine’s municipalities decide to do. Passage of the excise tax cut will mean about a 2-3 percent reduction to total municipal revenues, which currently total an estimated $4 billion a year. Voters, as they should have the right to, will decide how best to deal with any shortfall that results from this minimal cut. The Taxpayer Bill of Rights (Question 4) initiative which accompanies the excise tax cut on the ballot, by the way, would require voter approval for any increase in property taxes which exceeds certain limits. It is therefore critically important that both initiatives win passage.
Municipalities are claiming that this cut will hurt their ability to maintain roads and bridges. Is this accurate?
• Though Maine Municipal Association (MMA) would love to establish some kind of fixed connection between the excise tax and spending on town roads, no such connection of any kind exists in state law. Municipalities are therefore free to deal with the excise tax cut however they wish, including cuts to road maintenance, if that is what voters, either directly or through their legislative bodies, choose to do.
• The MMA would also like people to believe that the only two responses available to towns confronting a loss of tax revenue are to either cut services or increase taxes. The third option, of course, is to increase productivity through better management or by undertaking regionalization or privatization initiatives. Maine’s families and businesses have had to endure far worse than 2-3% cuts to revenue recently and towns can do the same, though the MMA would like everyone to believe otherwise.
Why include the incentives for the purchase of fuel-efficient vehicles?
• Aside from their clear benefits for the environment, the fuel-efficiency incentives in the bill put more money in the hands of consumers by encouraging them to purchase more fuel-efficient vehicles. Money that is not spent on fuel is money that can then be invested in much-need job creation for our state or spent by consumers frequenting Maine businesses. These incentives, therefore, will not only mean cleaner, more fuel efficient cars on our streets, but will mean ongoing savings for consumers, savings that can be put back into Maine’s economy to create jobs and greater prosperity.
Why is it important that this initiative pass this fall?
• According to a new report by MHPC’s Scott Moody, there are 13,000 fewer Mainers employed in the private sector today than there were ten years ago. Over that same period, though, State and local government spending and employment grew dramatically, and even now, even in the midst of a major economic downturn, there are 3,400 more people working for state and local government in Maine than there were in July of 2000.
• This is not a sustainable path for Maine to follow. No state or nation ever grew prosperous by destroying private sector jobs and creating fewer public sector ones to replace them. Tough choices have to be made, choices that state and local policymakers have thus far refused to make.
• State legislators of both parties seem to now understand, at long last, that unprecedented steps will need to be taken to turn Maine around. The excise tax cut will force local policymakers to take similarly dramatic steps themselves.
Summary: The excise tax cut provision will force local governments to become more frugal, which is a key to our future prosperity; will pump $80 million into Maine’s private sector economy, which is a key to our economic recovery; and will mean newer, safer, cleaner cars on our roads, which is a key to improving our standard of living and quality of life.