LD 849 is a genius piece of political posturing.
The news reports on this bill, which passed the Senate yesterday, simply say that Republicans voted to “reduce the income tax rate to 4%.” Looks great! They got the headline they wanted. No further explanation given or required.
But what the bill actually does is only slightly better than nothing. It does nothing in terms of taxes people actually pay, but creates a nice baseline for future Republicans to compare all budgets to.
The bill, technically, creates a new “fund,” into which goes any extra, leftover money the state has after all it’s general commitments are paid. Some of that is then doled out into the budget to reduce tax rates until the top rate is 4%.
The original bill only lowered the top rate to 6.5%, but that lacked the panache necessary to really excite the unsophisticated Republican voters whose buttons are meant to be pressed by this headline, so they lowered it to 4%. That is apparently the poll tested number that LePage voters find most exciting but still believable.
How does this help future Republicans? Consider that state revenues are unusually low, given the recession. Understand that these revenues will go up substantially in the next few years, even if the actual tax rates do not. Also understand that there are a lot of costs the state is deferring at the moment, costs that are being pushed ahead into future budget years in order to stop an immediate tax rate increase to make up for the current, temporary revenue decrease.
So if 2013 rolls around and Democrats are in charge of writing the budget again, the Republicans know the new legislature will do what Democratic-controlled bodies always seem to do in the current millennium: craft a moderate budget that keeps the lights on and even fixes a few potholes, literally and metaphorically.
And Republicans will jump out from behind a tree screaming, “Democrats are increasing taxes 200%! They want to double your taxes!”
How? Because the current tax rate is 8.5%, heading down to just under 8% in a year or two. And Republicans will look at the next budget and calculate the relative tax rates compared to their mythical 4% they passed but never implemented. And eight is twice as high as four!
The 4% rate is mythical because the tax rate would only reach that low if spending did not increase at all from these historical lows, and revenues skyrocket in a good economy. But of course spending will increase because the government has been putting off lots of general housekeeping and upkeep- the sort of stuff that can be let go for a few years unnoticed before people start complaining.
Oh, and spending will go up modestly even without paying all those deferred costs, as always, because of inflation.
Yet Republicans will calculate a tax increase as what Democrats propose in their responsible budget versus their hypothetical baseline that could never, ever, actually happen. They will determine that we would all have been paying 4% by 2020 if we had just held the line on spending, and therefore that Democrats want to double your taxes.
This is the beauty of the Republican party- moderation and reality mean nothing. They will make this claim of a potential doubling of taxes even though the top rate in effect is, will be, and always was somewhere over 7.9 percent at all relevant times. And they can’t actually propose a budget with a 4% tax rate, because that would lead to all kinds of nasty news stories about what they cut to make the numbers work. That is the beautiful thing about this bill: you don’t have to cut any spending if your tax cuts are imaginary!
So when the Democrats propose a budget generally like the last one, but with a modest spending increase over historic lows, Tea Party types will jump and scream because they won’t realize that the 4% rate was impossible all along.
The tax cut in this bill is completely useless as a piece of responsible, honest governing. It is fiction.
This bill’s only use is as a talking point in 2014. And it is only a useful talking point if Republicans aren’t actually in charge of the budget- because otherwise they would be the ones raising taxes when they continue to fund everything at or about historical levels, with inflation added in, thus continuing the endless cycle of small, continuous budget increases. Their decision to pass this bill shows that they are already hedging against losing the legislature.
They know they probably won’t be in charge, so they can put these little talking-point bombs into the system.
And if they somehow maintain control of the legislature, we will not hear of this 4% number ever again. They will lower the 7.9% rate to 7.6%, or something like that, and talk about how historic that is. The 4% baseline is only meant for attacking others. No Republican will ever be held to it.
Cynical? Yep. Politically smart? Sure, if you plan on losing the legislature sometime soon.
I wouldn’t be surprised if this tactic is happening in other states controlled by radical Republican majorities in usually un-radical states. It makes a lot of sense, tactically.