The Tax Cap

In November Maine voters will come face to face with a ballot initiative that, if successful, will cap property taxes and reverse the recent dramatic increase in property valuations.

The tax cap is an understandable reaction to a problem the legislature has been much too reluctant to face: escalating property valuations and taxes, pushed ever upward by climbing real estate prices, particularly where shorefront property is involved.

Statewide, Maine depends on four major sources of revenue to pay for services: the property tax, the income tax, the sales tax and excise taxes. Services paid for – some more, some less – include schools, roads and ferries, a piece of the health-care puzzle, social services, the University of Maine and the community colleges, environmental protection and law enforcement. We run a prison system. And so on. Some activities generate revenues; others don’t. Today’s tax system – the various streams of tax revenue with which we fund these things – represents an effort at allocating costs with some degree of fairness.

The proposition on the ballot this fall would greatly reduce revenue from one source, the property tax. Right now, most of that money goes to schools and municipal services. Remove, say, 30 percent of the property tax money, and in the short run we’ll face some drastic cuts, some in municipal services but mostly in the local public schools.

That’s the immediate effect. But then, of course, the political process will begin to work. Suddenly strapped for cash, towns and cities all over Maine will send their representatives to Augusta with clear instructions: find the money to fill the gap.

For islands and other places with small populations, that’s the point where things get ominous. Ask taxpayers all over the state to make up for the lost revenue and we’re sure to hear a lot about efficiency and consolidation, along with cutbacks in certain services that don’t benefit everyone, such as ferry service or state efforts to provide public access and protect working waterfronts. It’s a political reality: in a cash-strapped universe, the small places (with fewer voters) will lose out to the big places.

Even if a successful tax-cap vote prompts a shift to tax sources that are more equitable (the income tax) or paid in large part by non-residents (the sales tax), the money won’t reach the local level until it has flowed through Augusta. There will be a net loss of local control.

So the question is this: if we want to regain control of one aspect of our lives – the taxes we pay on our homes – how much control over other things are we willing to give up? Dedicate more of the state’s revenue to schools, and legislators are sure to speak more loudly than ever about how we spend the money at the local level.

On one hand, the tax cap vote is an outgrowth of anger, frustration and loss of control over Mainers’ right to live where they want. But unless we really want to starve our governments and schools (and that’s another whole topic) lower property taxes will mean higher income and sales taxes and less local control. Voters – particularly if they live in very small municipalities such as islands – should keep these trade-offs in mind.