In Augusta, there are rumblings about expanding the sales tax base to include services in order to increase revenue. Some want to spend the revenue increase, others want to reduce other taxes such as dropping the top marginal income tax rate. However, expanding the sales tax to services not only violates the principles of good tax reform, it would also be economically destructive. On net, it would be very difficult to undo the harm caused by sales tax base expansion--even if all the revenue raised went to reducing other taxes. The reason why sales taxes are bad economically is due to "tax pyramiding" caused by the taxation of business inputs--I discuss this in more detail in my recent sales tax report. Another report by the Council on State Taxation (COST) also comes to the same conclusions.
February 2007 Archives
On Monday, February 12, 2007, I testified before the Joint Committee on Taxation on the issue of tax reform. See my prepared remarks here. I made two additional recommendations to the committee that were not included in my prepared remarks. First, the committee should undertake an extensive review of all taxes and fees currently on the books and determine whether or not they should continue to exist. In essence, a "BRAC Commission" for taxes. Secondly, the committee should order the creation of a tax compliance study for Maine. Just as Maine was a pioneer state in the creation of its tax incidence report, Maine would again be a pioneer state with the creation of a state level analysis of tax compliance costs. The federal government already undertakes such a study through the Internal Revenue Service. This report, for example, explores the federal tax compliance costs on small businesses.
How much do state governments and municipalities owe in promised retiree benefits? It is a good question, which is not easily answered.
However, with the new Governmental Accounting Standards Board Statement 45, commonly known as GASB 45, state governments must now calculate and publish the cost of those benefits. The accounting changes establish greater transparency for taxpayers and potential creditors. Additionally, these accounting changes provide a greater understanding of a state’s financial health.
Most private sector retirement benefits have been transformed to a defined contribution system. In such a system a set amount is deposited into a 401k and a set amount is allocated for health insurance premium costs.
Government employment contracts buck the defined contribution trend. Instead of employers setting a fixed rate for retirement benefits, state governments write contracts with defined benefits. Defined benefits result in an open-ended expense because the contracts dictate benefits regardless of how much they cost. These contracts leave taxpayers exposed to enormous future benefit costs, which before GASB 45, were only known to a few insiders.
For Maine the number is a staggering $3.3 billion, an increase of more than $2 billion from the 2003 projection. The figure represents a cost of $100 million annually.
The GASB 45 accounting changes provide taxpayers with a much needed transparency and understanding of the fiscal challenge that retirement benefits pose. With the increased knowledge policymakers will be able to better plan for future retirement expenses.
The Cigarette Tax
The next installment of the "Hidden Tax/Fee of the Week" is available on the MHPC website.
Total Hidden Taxes/Fees to Date: 266
P.S. The Governor's recent budget proposal would increase the cigarette tax to $3.00 per pack which would be the highest state levied rate in the country.
Would it be a surprise to learn the New Hampshire has the largest private sector share of personal income? Of the components of the public sector, NH is ranked 44th in personal current transfer receipts and 49th in government compensation as a share of personal income. The low transfers are a bit surprising given that NH is the 6th oldest state in the union--39.5 versus Maine's 41.2.
Would you also be surprised to learn that New Hampshire has the 6th highest per capita personal income in the country--versus Maine's rank of 37th? Perhaps Maine policy-makers should pay more attention to what's going on in the Granite State. To view graph, click "continue reading."
The Ellsworth American came out strongly in favor of the MHPC school district consolidation compromise plan, outlined in our most recent "Maine View"
According to the American:
"Of the proposals that have surfaced so far, a plan advanced by Stephen L. Bowen, a teacher, former state legislator and now adjunct scholar at the Maine Heritage Policy Center, has more merit than any we’ve seen."
Read the entire editorial at:
Ellsworth American
