Tax reform or the Augusta War: Which way will Maine go?

“The Great Shutdown of 2017” will be remembered much like the “Aroostook War”; an interesting historical footnote in Maine’s history.

The apocryphal casualties of the latter consisted of one cow. For the former, two vehicles of Republican representatives may or may not have been vandalized by individuals who missed the childhood lesson on using their words.

Causus belli for the “war” was a lack of agreement on where the border between Maine and Canada was located. And the cause of the shutdown began when the $4 million-plus effort to pass one of the highest income tax rates in the nation eked out a victory last November, while voters simultaneously supported divided government in Augusta.

The Bangor Daily News provided a well-researched timeline of important milestones on the road to the shutdown, trying to give context to the short-lived standoff. However, it missed a major marker on the way, one that gives hope for bipartisan reforms to help stem the tide leading to future shutdowns.

The Maine State House in Augusta. Troy R. Bennett | BDN

Astute observers may recall back in May when 56 Democrats and affiliated independents threatened to shut down state government. Their demands? Maintenance of the 10.15 percent top income tax rate — the second highest in the country — or a “progressive and sustainable funding source” to pay for education.

With the GOP holding strong against the 3 percent surcharge despite internal divisions, Democratic leadership dealt away the tax hike, originally in exchange for a 1.5 percent increase in lodging taxes. Those 56 lawmakers on the left then voted for the budget. So what happened?

As far as I can see, there are only three possible explanations. One, they never meant it; it was only a negotiating tactic. Two, they changed their minds in order to keep state employees working. Or three, they thought the lodging tax hike was a “progressive and sustainable funding source.”

Knowing several of those on the left who drew that line in the sand, option one doesn’t fit. While their policy prescriptions may not be right for Maine’s economic health, they are sincere their beliefs. Option two could fit for some of them, particularly those who have large contingents of the more than 10,000 state employees in their districts.

But option three, based on comments surrounding the negotiations, likely fits best of all. Democrats and allied groups latched onto talking points about Gov. Paul LePage proposing a lodging tax increase in his budget offered in January. And he absolutely did, but it was a component of a much larger tax reform.

That idea of larger tax reform has eluded everyone in Augusta over the past 10 years. Yet if Democrats can agree that a sales tax can check the “progressive” box, then we just might be onto something.

The failures littering the Legislature over the past decade stem from one of two causes. With the various proposals put forward by Democrats (and some Republicans), the result of reform was a tax increase and increased spending. On the right side of the aisle, many reform proposals focused on reduction of state spending and then cuts to marginal income tax rates.

Republicans cut taxes, and left-wing groups push referendums raising them. Democrats expand the sales tax, and those on the right run a People’s Veto campaign defeating it.

The seesaw is not unlike the border battles of the 1800s. The “Aroostook War” saw militia called out — American “red shirts” versus Canadian “blue noses.” But they retreated with no (human) blood spilled because Congressman Daniel Webster and British Lord Ashburton were appointed and hammered out a deal.

With record spending in Augusta and no crisis du jour, we might be able to reach an accord on a modern tax code. Republicans want to cut or eliminate the income tax; that may take on new urgency if federal tax reform removes deductions for state income taxes. Democrats want progressivity, or people with more to pay a higher percentage in taxes.

If both sides can agree to a detente — revenue-neutral reform, not raising or cutting a single-cent — then modernization may be in reach. Democrats can raise the lodging tax — and golf taxes, and ski taxes, and countless others — to meet their goal of “progressivity.” Republicans can take those revenues and reduce income tax rates, possibly even reaching the magical number of “0 percent.”

There are countless other pieces to holistic redesign of our tax code, from mitigating the costs on Mainers and incorporating property tax changes to incentivizing the permanent residency of all those who “summer” here.

However, without reform, the seesaw battles will continue and shutdown brinkmanship will rise again. And the next historical footnote for our state may be the “Augusta War.”

With some wise leadership in the Capitol, we won’t have to get there.

Michael Cianchette

About Michael Cianchette

Michael Cianchette was the chief counsel to Gov. Paul LePage from 2012-2013 and deputy counsel from 2011-2012. A Navy reservist, he was deployed to Afghanistan from 2013-2014 as a trainer and adviser to the Afghan National Police. He is an alumnus of the Leadership Maine program and holds a BA in economics and political science from Boston College along with a JD and an MBA from Suffolk University. He works as in-house counsel and financial manager for a number of affiliated companies in southern Maine.