Maine Democrats Slash Income Tax, Create Flat Rate

The Maine Legislature just pushed through a massive tax reform bill in the Pine Tree State.  This was not just a token "move the chairs around" reform bill - it was far reaching, ambitious and will genuinely help move Maine in the right direction on this issue.  The Wall Street Journal went as far as to call it the "Maine Miracle".

But here's the kicker - the bill was proposed by Democratic Governor John Baldacci, and overwhelmingly supported by Maine Democrats.  The Maine GOP naturally had several problems with the reform bill - many of which were legitimate, but at the end of the day we still have to realize that taxes were shifted from compulsory income taxes that were "progressive" and graduated, to a virtually flat income tax, with a shift to consumption taxes.

Don't get me wrong, if I were in charge of reforming the Maine tax system it would have looked dramatically different and provided a tax cut more quantifiable and more far reaching, but lets be honest here folks, this is at least a step in the right direction.

Baldacci is quite unpopular in the state, but its hard not to admire a lot of what he has done in his second term as Governor. He had barely even been sworn in again, and already he was pushing to consolidate the 152 school districts in the state down to 26.  He's also no fan of REAL ID, and was the first Governor in the United States to sign a same-sex marriage bill without being ordered to do so by a court - something I happen to consider a point in his favor.

Yes, I know, a few quality policies does not a good Governor make, and he still has things like Dirigo Health as major black marks - but still, he's done a lot right and we shouldn't be afraid to say so.

But whatever he has done right previously pales in comparison with the landmark tax reform bill he just pushed through and then signed.  The bill reforms Maine's tax structure in a number of important ways, but the crux of it comes down to the following changes:

• The states draconian and punative progressive income tax rate which topped out at 8.5% has been essentially changed to a flat tax (you heard me) of 6.5%.  The only exception to this is an additional 0.35% surtax charge for those making over a quarter of a million dollars.
• The state budget will be cut by 300 million to offset the losses, coupled with some tax loophole closings and extensions on the sales tax.

And to those critics of "tax cuts for the rich" that the new flat tax creates, Baldacci sounded off:

"Without employers, you don't have employees.  The best social services program is a job."

Incredible.  Well said, Governor.

Granted, the Republicans haven't had much of a chance to impliment this type of agenda since Jock McKernan was Governor (and he was hampered by an aggressive and hyper-partisan Democratic legislature), but it is to Baldacci's credit that he was the one - despite his party affiliation - who finally pushed through a comprehensive tax reform bill.

But, this betrays a larger question - why did Baldacci and the Democrats do this?  Are they converts of a fiscally conservative agenda (no), or is something else going on here?

The answer is pretty simple.  In 2004, Maine Republicans essentially split the Maine House and Senate 50-50 with the Democrats.  Maine is not a blue state.  Its not a red state either - as I've said before, its a gray state with a very slight blue lean, but it is completely winnable for competent Republicans with the proper message. 

But Maine Democrats rode the anti-Bush wave in 2006, and the Obama wave in 2008, and are now in complete control of every level of government.  However, now that they have power, unemployment is spiking high, wages are stagnant, young people are leaving the state and taxes are strangling the population.  Those of us in the know smelled major Republican gains in the House, Senate and even the Governor's Mansion.

Add to that the fact that Maine Republicans seem to be getting their act together.  Rather than the tired, poor choices presented to Maine voters in the 2006 election, there is actually an impressive crop of Republicans running for Governor in 2010 - cheif among them is Matt Jacobson, President and CEO of Maine & Company, an organization aimed at bringing businesses to Maine.

Jacobson has been carving out a decidedly pro-business, pro-growth, pro-jobs economic agenda for his candidacy, and it is already starting to resonate.  Indeed, Jacobson has been described as a "human jobs machine", as his position is literally devoted to doing just that - creating jobs.  In this environment, that type of economic message can quickly light on fire.

And Jacobson isn't the only one, other candidates such as Bruce Poliquin and Les Otten have cut their teeth in the business world, and will be hammering similar messages. Maine Republicans seem to have become clued into the fact that this brand of conservatism actually sells pretty well in Maine and are far more interested (for once) in talking about them now.  For the next two years Jacobson and the Maine GOP will likely be hammering that message non-stop, hoping it will sweep them back into prominence.

But in this one move, Maine Democrats attempted to cut Jacobson and other GOP primary candidates, as well as the statewide Republican message model off at the knees.

They are now able to campaign on the largest tax cut in Maine history.  They are now able to campaign on approving a budget that allocated fewer dollars than the previous year for the first time in three decades.  They can campaign on making Maine's business environment more friendly, and its tax burden less cumbersome.  Essentially, they out Republican-ed the Republicans, and may have just guaranteed themselves a continued majority for the forseeable future.

One wonders why national Democrats didn't take a similar strategy upon sweeping into power in 2008.  Imagine if the Democrats pushed for a balanced budget, fiscal discipline, and preached a more conservative fiscal policy.  After the Bush years and the gross excesses, massive government growth, huge budget deficits and fiscal irresponsibility that flowed from all that, they could have dealt a death blow to the GOP.  But they didn't do that.

Luckily for Maine Republicans, they have no such history of hypocritical behavior while in power - partly because they have been on the outside looking in for so long.  Thus, this newfound fiscal sanity by the Democrats won't necessarily be a crushing move, just a damaging one.

Fortunately (in a political sense), Maine has a long way to go in terms of taxes and business climate - they will still be in the middle of the pack for total taxation, and last year Maine was ranked as having the third worst business climate in the United States, and even this bold move won't suddenly mean Maine is out of the woods yet. 

Matt Jacobson is still a phenomenal candidate, and the Maine Democrats have already claimed about all the seats they are probably able to at this point, so 2010 is still looking up for the GOP in the Pine Tree State.

But with a bold stroke of political brilliance, the Democrats may have mitigated the damage a great deal.  I admire such a level of political accumen.