“Taxing the Rich is Sucker Bait”

By Prof. John Frary

I hope we can all agree on at least three things: 1) Maine’s Constitution requires the budget to be balanced; 2) the state has a really, really big bill to pay in the form of unfunded mandates; and 3) Paul LePage has no responsibility for the accumulation of these unfunded bills.

I know Number 3 will be tough for some people. But let’s face it, the bills accumulated long before he took office.

There’s no way that we are going to reach agreement about who’s responsible for this pile of debt. But we can agree, at least, that assigning responsibility is of no use in solving the problem.

The LePage budget proposal to raise the retirement age and increase the pension contributions of teachers has provoked protests that the budget should not be “balanced on the backs of the teachers.” Some Republican legislators, growing weak at the knees in reaction to phone calls from aggrieved teachers, have joined the cry.

So the question is: “On whose backs must the budget be balanced?” Word reaches me of a gathering of teachers in Franklin County at which the 90-odd participants protested the “demonization” of the teachers, while spending a lot of time “demonizing” Lauren LePage for getting a job on her father’s personal staff. I feel obliged to point out that the budget is not gong to be balanced on the back of Lauren LePage.

I’m told that a more plausible and explicit proposal was suggested at a meeting and received approving applause: raise the sales tax. Might as well raise three cheers for the tooth fairy or Santa Claus. It’s not going to happen. The Democrats proposed passing such a measure and a People’s Veto sank it without a trace by a two-to-one margin. They won’t be proposing it again any time soon, and the GOP won’t touch it.

Proposals to balance the budget on the backs of the rich are more attractive politically. After all, they have stronger backs than the teachers. Unfortunately, experience suggests that taxes aimed at the rich have a way of turning into taxes on the middle class.

When Congress passed the Alternative Minimum Tax (AMT) in 1969, it targeted 155 millionaires who had paid little or no income tax the previous year. By 2007 it turned out that three million taxpayers were about to get hit with the AMT on their 2006 incomes—85,000 of them in Maine. The number was projected to rise to 23 million in another year.

If it’s not fixed, the AMT is projected to hit one third of all taxpayers by 2017. Congress has been tinkering with it ever since, but it is reluctant to simply abolish it. It needs that money.

Maine’s income tax shows the same pattern. When it was instituted in 1969, the top marginal rate (on the rich) was 2% on incomes between $2,000 and $3,100. That has the same purchasing power as $19,000 today, for which you would pay 8.5% in income tax. This is the more than the rich would have paid on every dollar over $50,000 in 1969, the equivalent of $290,476 in 2009. The federal income tax, passed in 1916, shows the same pattern.

Statistics are boring, so let me make this simple: “Taxing the Rich is Sucker Bait.”

I see two remaining alternatives. Balance the budget on the backs of the taxpayers by reducing the tax cuts proposed in the governor’s budget, or balance it on the backs of the children by putting the state deeper into debt. I’m backing the second option. It’s become a deeply rooted American tradition to dump our debt on our children, and I have 70 years of bad habit behind me, plus a short life-span ahead.

Sure, Mainers are full of tenderness and love for the little children. But look at it this way: by the time the bill falls due, they will all be adults. They will have long since stopped being cute and lovable. I say sock it to ’em.

Professor John Frary of Farmington is a former candidate for U.S. Congress and retired history professor, a Board Member of Maine Taxpayers United and an associate editor of the International Military Encyclopedia. He can be reached at: jfrary8070@aol.com