Lawmakers miss opportunity for meaningful tax reform in pursuing one-time relief checks
Over the last few weeks, Maine legislators have been preparing to vote on Governor Mills’ latest supplemental budget bill, holding hearings with administration officials and taking public comment on how the budget surplus, projected by the state Revenue Forecasting Committee, should be spent. By last Friday, when the governor released the official bill language of her final proposal, much of the stage had been set for easy passage, with or without support from House or Senate Republicans.
The governor is offering to spend all but $20 million of the more than $1.2 billion in surplus revenue the state is projected to take in by June 30, 2023. By far the largest portion of this massive spending bill takes the form of direct payments––checks to be sent to residents who made less than $75,000 in income over 2021 ($150,000 for joint filers). Initially set at $500 when the surplus stood at just $822 million, the latest “change package” would deliver $850 checks to each qualifying Mainer.
For a state government that spends about $4.2 billion per year, $1.2 billion in potential excess revenue is staggering. If lawmakers had an appetite for transformational policy, they would make this the opportunity to satisfy it. Maybe progressives would opt to seed a large program like universal healthcare, while conservatives might pursue vast tax reform and spending cuts.
From here, the idea of sending (almost) everyone a check seems like a moderate, compromise position. Legislative Republicans offered it as their initial salvo to the governor when the projected surplus became known last fall: instead of spending the money on new programs, just send it back to the people.
Governor Mills adopted this into her plan, dedicating half of the total projected surplus for checks to about 800,000 taxpayers, noting in her State of the State address in February that it was a Republican idea. While this move guaranteed that a majority of the spending would not go to growing government, it essentially neutralized any further Republican attempts to negotiate how the surplus should be used. Even as state revenue projections rose higher and higher, Mills stuck with the mechanism of direct payments.
After a failed attempt to speed up the process by which some recipients would get their checks sooner via electronic transfer, House Republicans are now lobbying to expand the pool of direct payment recipients to those with higher incomes. While this makes sense––everyone has contributed to the surplus, so everyone should benefit––why would Mills and legislative Democrats accept that offer now?
If legislators pass this supplemental with a simple majority before April 20, the date of statutory adjournment, checks will still go out starting in July. No Republican support needed.
This might be the best option for the times. The money set aside for direct payments, more than $680 million, will be one-time spending, meaning that no budgets will grow as a result of that provision, though the bill contains $172 million in ongoing spending, which will raise the state’s baseline budget. No doubt this deal is better for taxpayers than all new spending, but by throwing out an easy first offer to the governor, Republicans missed a considerable opportunity to focus the conversation around the necessity of real tax reform.
Mainers’ need a tax cut, which is also to say we need a spending cut. Inflation-adjusted state spending per capita has risen more than 23% since 2010 while the population only grew 3.17%. Today, the state tax burden compared to income is the 12th-highest in the 50 states.
Fiscal stability is crucial for building future growth in this uncertain era. Maine needs structural, lasting reform because we have long-term, systemic problems in our economy; problems that will persist beyond when some Mainers receive their $850 checks.
Many Mainers might see the direct payments as covering some of their yearly heating bills or some of the recent spikes in their power bills, but inflation is still accelerating in all parts of the economy, although some more than others. The annual change in the Consumer Price Index (CPI) is up 8%, but energy prices are up over 25%. Gasoline prices remain at historic highs, though below the 2008 spike in real terms.
The Producer Price Index (PPI) is also nearly 10% higher than last year, reflecting in part a significant rise in costs of raw materials. The Association of General Contractors (AGC) reported that inputs for new nonresidential construction rose nearly 20% from December 2020 to December 2021.
One-time, temporary spending might help combat inflation if it was “transitory,” a point the White House argued last year, but later abandoned. Precisely because the inflation we are experiencing is ongoing, and still accelerating, more cash in everyone’s pockets will not slow the growth of prices. Since the Revenue Forecasting Committee expects a similar surplus to materialize in succeeding budget cycles, now is surely the time for long lasting reform to taxes and spending.
A persistent and stubborn labor shortage has plagued Maine for decades, but this issue has deepened considerably since 2020. Far from being solely anecdotal, this phenomenon shows itself in the labor force participation rate. From late 2010 to early 2019, Maine outperformed the national average. In 2019, Maine began to fall behind. While exacerbated by the economic shutdowns in response to the pandemic in the spring of 2020, Maine has fallen further. After enjoying a hiring rally in summer 2021, labor force participation has dropped since last August while the national average has enjoyed a stable rise.
Even two years later, Maine has not recovered the level of jobs maintained before the pandemic. Maine recorded 28,000 fewer jobs in January 2022 than it did in February 2020 just before the lockdowns began.
Overall, Maine’s labor force participation rate, still below 60% of eligible adults, is down more than twice as much as the US average since February 2020. New Hampshire and Massachusetts both remain above 65%, with the latter recovering to February 2020 levels.
These persistent, structural issues are exactly why Maine needs long-term, structural change to the budget. If the goal is to grow out of this malaise, policy must reflect that. By letting this moment pass us by, Maine lawmakers will have balked at an opportunity for bold tax reform, something the state has needed for decades.