Slicing our state dollars

By Paul Ackerman | Jul 12, 2014

Many people seem to have the perception that our out-of-pocket taxes (sales, excise, fuel, property, etc.) fund much of what we see of state services on a daily basis. However, when one examines the Comprehensive Annual Financial Review (CAFR-2013) that the State of Maine produces, it becomes clear that this notion is simplistic. Revenues stream in from various sources, and they seem to flood out through appropriations in increasingly alarming proportions to fund functions of state government. It is worth considering where the money comes from, and then, how it gets spent.

Surprisingly, a significant amount of revenue comes from personal income taxes on a small part of the state’s population, and a flow of federal funds categorized as “Grants & Contributions." For the year 2013, these two sources of revenue alone account for 63 percent of all the revenue allocated to various state programs and departments. It appears that many of the “Grants & Contributions” are federal government pass-through funds to assist with operating programs that are federally mandated. As the recent federal stimulus package ends, Maine should not be counting on this type of largesse to continue.

Recognizing the dependence on the federal government (illustrated here by 42 percent of 2013 revenues under Grants and Contributions), much of which is financed by federal borrowing, it should be obvious that Maine needs to change course, as does the federal government.

Could we reduce the dependence on Uncle Sam by 20 percent in a few years? And if so, what programs would be cut or reduced? How would we make up the difference in revenues to fund state expenditures?

Valid questions to ponder, though given our state’s economic conditions, raising taxes isn’t a great choice for replacing decreased revenues. Winston Churchill’s comment comes to mind, ”For a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”

Maine has a very small population, about 1.3 million, and our income tax base depends almost entirely on a small percentage of these residents.

In 2012, the CAFR outlines the income tax revenues as follows:

12 percent of all taxpayers paid 58 percent of the total tax revenues. So, we have 76,126 income taxpaying residents, less than 6 percent of the state population, paying 58 percent of the income tax revenue.

Mid-level tax payers, earning $30,000 to $100,000 — 267,466 residents — are 52 percent of all income tax payers, and actually paid 39 percent of individual income taxes in 2012.

Those earning less than $30,000 (almost 300,00 residents), 47 percent of Maine income tax filers, contributed about 3 percent of 2012 individual income taxes to Maine. Note the difference between tax payers and tax filers.

As the tax burden, and not just income taxes, but property taxes as well, are increased on the middle and upper income tiers, many of these individuals can consider other options such as moving their business/occupation to states with less taxation. Obviously not everyone’s circumstances allow or dictate moving out of state, but it has become a significant factor in other New England states in recent years. Many people from Maine, and other New England states, have become “snowbirds,” migrating to Florida for the both the temperate climate and the tax policies

The lower income tiers have an economic incentive to leave the state to seek better opportunities elsewhere, but only if their education and skills are competitive and suitable outside Maine.

The important point to grasp is that Maine needs to have something other than the charming views and a mythology of character to attract and/or retain year-round residents capable of generating larger tax revenues. Many of these people become employers, or create business for others in Maine over the long run. If there is a disincentive to stay here, such as higher overall taxation, why would they?

Comments (1)
Posted by: Sandra Schramm | Jul 12, 2014 18:03

Short explanation of a serious ailment in Maine. Thank you Paul.



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