2017-05-04 / Editorial

How do taxes work?

Legislative Lowdown
by Rep. Martin Grohman

Property tax can be a difficult tax. It doesn’t care if you’re rich or poor, or whether your business had a good year or a bad year. You still pay it. It doesn’t care if you just bought your home or have kept it up and owned it since 1970. You still pay it. From a business point of view, from a retiree’s point of view, or a homeowner’s point of view, it’s a difficult tax.

But cities and towns don’t have any other options. In Maine, local governments can’t impose sales and income taxes, only the state can. In recognition of this, and in recognition of many services they perform on behalf of the state, the Legislature over the last 45 years has provided some state financial resources back to municipalities through a system called revenue sharing. For many decades, this revenue sharing distribution was set at 5 percent of all state sales and income tax revenue. However, the revenue sharing amount has steadily decreased over the last eight years. In fact, the percentage was cut to 2 percent last year, reducing state funding to cities and towns by tens of millions of dollars. That puts local governments between a rock and a hard place. Municipalities can not just stop providing services when the state cuts funding. Many of these services are in fact mandated by the state. We all want and need emergency services, clean and safe streets, not to mention good schools.

The result is an increase in property taxes. Here in Biddeford and in other communities around the state, property taxes are skyrocketing. That’s not because of out-of-control municipal spending, but because of that reduced contribution by the state, even as state sales and income tax revenues have turned a corner and are steadily increasing.

Cities and towns can be in a difficult position in particular when considering education funding. Maine sets the rate at which towns must fund education, called the “minimum mill rate expectation.” That requires local governments to fund a majority share of the cost of educational services required by the state. But if the state does not match funding to that requirement, municipalities have no other option but to make up the difference with an increase in property taxes.

Some relief to seniors or others on a low or fixed income has been provided in the form of the Homestead Property Tax Exemption. The Legislature has also recently added two income tax credits: the Property Tax Fairness Credit and the Earned Income Tax Credit. However, you have to file a tax return to get these credits, and many seniors do not file tax returns. The result is that the programs are not as effective in offsetting increased property taxes as they should be.

To sum up: Mainers living on fixed incomes do not have the flexibility to come up with more money as property taxes go up. The various tax credits meant to address this problem are not reaching enough people. The budget crisis at the state level is over; state sales tax revenue in particular has been growing; and I think it is only fair to restore municipal revenue sharing. An incremental approach from the current, reduced level of 2 percent back to the historical 5 percent of state sales and income tax revenue over the next three years is a sensible transition. Property tax relief depends on it.

Rep. Martin Grohman (D-Biddeford) is serving his second term in the Maine Legislature. Outside the legislature, he is chairman of the Solid Waste Commission in Biddeford, and the owner of a small company called Hellocycle which does alkaline battery recycling by mail.

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