Are sales taxes the best way to take your money?

Quick: what’s the best way for Augusta to take your money?

It’s a jarring question, but with an answer comes the start of tax policy.

Should it automatically come out of your paycheck every week, based on how much you make? Should you ante up when you buy something out in the marketplace, paying for public services alongside your hamburger? Or should the government tally up everything you own once a year and send a bill; if you have a lot, you’ll pay a lot?

Respectively, those define income taxes, sales taxes, and property taxes. What’s the least bad option?

Trick question — there’s no correct answer. Different philosophies and objectives lead to different solutions; different levels of government are better suited to impose different levies.

Yet wherever you land, the fact remains some amount of funds are necessary to pay for public services. I’ve yet to find anyone opposed to well-functioning judicial system, enabling us to resolve disputes with pleadings rather than pistols. Sufficient police and prisons are also necessary, to deal with those who resort to pistols. And roads; everyone likes good roads.

So how do we pay for it all?

Gov. Paul LePage’s budget proposal offers one way. Move away from reliance on the income tax and instead pay for government alongside goods and services as they are consumed. This means increasing the number of things subject to the sales tax. He has received a lot of grief from Republicans on that proposal. Why? Because it — in a very rough comparison — kind of, sort of looks like a Democratic tax plan from 2010.

That’s not wrong. The Democrats proposed expanding the 5 percent sales tax to many more goods and services, while lowering the top income tax rate to 6.85 percent. LePage wants to add the current 5.5 percent sales tax to a few more transactions and impose a flat income tax of 5.75 percent.

The difference comes in the outer years. The Democratic tax plan would’ve resulted in more money flowing to Augusta; LePage has made no secret of his desire to abolish the income tax outright, his budget slowing the expense growth in state government. That divergence reflects a disagreement about the nature of the problem in Augusta: do we not collect enough in taxes to pay for all the things that are necessary, or, succinctly, do we have a spending problem?

That debate will continue ad nauseam. But while it occurs, we can work to fashion a tax code for Maine as she is today. And there is a reason all the recent tax reform proposals — the Democrats of 2010, “Gang of 11” in 2013, LePage in 2015 and again today — focus on the sales tax.

Bill Gates attends the World Economic Forum annual meeting in Davos, Switzerland, on Jan. 19. Ruben Sprich | Reuters

Bill Gates attends the World Economic Forum annual meeting in Davos, Switzerland, on Jan. 19. Ruben Sprich | Reuters

A sales tax acknowledges the reality of online commerce, with some products existing solely as bits and bytes. It recognizes Maine is the state with most second homes, creating a disconnect between ownership and residency. And it accepts the fact that people with the financial means to relocate didn’t reach that point without some measure of financial literacy, including the impact of taxation on their standard of living.

The sales tax is fair, insofar as it is inextricably tied to an individual’s ability to pay. Non-residents — be they tourists, second home owners from Massachusetts, or former Mainers who have left for the winter sun and sand of the south — pay it, unlike our income tax.

The knock on the sales tax is that it isn’t “progressive.” That isn’t necessarily true on an individual basis, since your tax bill depends on your economic choices. An old Yankee who lives frugally and saves his money may very well pay less in taxes than a high dollar lawyer spending every nickel he makes.

But even if the “progressive” critique is valid at a macro level, maybe that is okay. If you accept it as a goal, maybe it is better achieved by federal income taxes. After all, the richest person in the country — Bill Gates — has 88 times as much as the richest person in Maine; no amount of machination by our legislature will ever make Mr. Gates subject to our state income tax. Yet if he comes for dinner, he can chip into the pot.

So as the debate occurs over the ramifications of Question 2, government spending, and the future of Maine’s tax code, let’s take a hard look at replacing our income tax with a sales tax. It might just be the least bad option.

You might even get Republicans and Democrats to agree on it. Who knows, maybe there is a right answer after all.

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.