You can’t lower taxes by raising taxes

By Vaughn Stinson
    Tourism, Maine's leading industry, has once again been targeted for tax increases. The latest effort, LD 1088, "An Act To Modernize the Tax Laws and Provide Over $75,000,000 to Residents of the State in Tax Relief" proposes to lower the income tax from 8.5 percent to 6.5 percent and to pay for this by raising and expanding sales taxes. While it is a great title (and marketing tool), the more I learn about this legislation, the less I believe it will accomplish its goals. Nothing has changed since I first made the statement – "you cannot lower taxes by raising taxes."
    First, LD 1088 would raise the meals and lodging taxes to 8.5 percent. Please remember, 70 percent of the tax on meals is paid by Maine people. This proves the exportability argument simply is not true. Such an increase during these difficult economic times would cause an additional hardship on our customers both residents and visitors. People are looking for value right now and to make a visit to Maine or a meal out more expensive sends the wrong message to the very people we are working hard to attract.
    People often say that the visitor doesn't care about the tax rate. Tourism leaders will tell you it does matter to the visitor. They look at their total bill and the amount they pay in taxes clearly stands out. When you buy gas for your car doesn't the cost matter? Haven't you made the decision to buy where the price is only a penny difference? People are cost sensitive and they do shop price. Every penny matters in the economic struggle we currently face. Maine competes against weather, proximity to places, value, and much larger tourism budgets outside of New England. To increase costs in a time of declining revenues is not sound planning or good business!
    In addition, LD 1088 will add a new 5 percent sales tax to a very long list of items that are now not taxed. There are over 100 items that Maine people purchase every day that would cost 5 percent more. These items include amusements, entertainment and recreation services such as theater tickets and ski tickets; installation, repair and maintenance services such as automobile and appliance repairs; personal property services such as dry cleaning and moving services; and transportation and currier services such as taxi cabs and limousines. The sales tax on candy will be increased to 8.5 percent, impacting more than 100 confectioners doing business in Maine.
    A key component of the bill is the claim that $75,000,000 of the $160,000,000 being raised will be paid by non-residents and, therefore, by exporting these taxes, the tax burden on Maine people will be reduced. Based on information from Maine Revenue Services, our calculations show that only $15,000,000 can be counted as "exportable" from the 1.5 percent increase in the meals and lodging taxes. Where will the remaining $60,000,000 come from? While the average Maine citizen may save some in income taxes, the net effect of this bill will be more than 100 new taxes.
    Tourism is Maine's largest industry and employer with an economic impact of over $10 billion. We are working hard to grow this industry in a very price sensitive and challenging environment. A tax increase at this time would not be in the best interest of Maine citizens or our largest industry — tourism. The answer has and continues to be found in spending controls.
    As I said at the outset, you cannot lower taxes by raising taxes.
    Vaughn Stinson is CEO of the Maine Tourism Association.