Securing our Future during an Economic Downturn

MECEP Issue Brief Provides Better Options for Lawmakers

Augusta – President Obama’s chief of staff Rahm Emanuel has one mantra for the current economic challenge, ‘never let a serious crisis go to waste.’ By this he means a crisis is an opportunity to deal with problems we’ve ignored or postponed. The current budget woes facing our state are compounded by the global economic crisis but they have been coming down the pike for a long time. Now would be a good time to set us on a more sustainable course. Unfortunately the proposals to deal with Maine’s billion dollar shortfall (2010-2011) are short-term solutions and may only exacerbate the economic downturn.

In this month’s Choices, the Maine Center for Economic Policy’s issue brief, economic policy analysts Nicholas Johnson, Garrett Martin and Kurt Wise present a series of options to not only weather the crisis but position the state for future competitiveness and growth when the economy turns around.

These include:

Increase revenues through short-term tax increases. Maine adopted this approach – with bipartisan support – in the early 1990’s under Governor McKernan. Currently thirty-four states facing shortfalls are proposing or adopting tax and/or fee increases.
Focus sales tax increases on items and services used more heavily by visitors from out of state.
Increase the income tax on high income households. Currently nine states are considering or have passed legislation that would place an additional tax on those with incomes over $250,000 or $500,000. In Maine, this could generate between $40-80 million over the 2010-2011 biennium.

Despite the political fallout that comes when revenue increases are mentioned, our country’s leading economists have made it clear that cuts in government spending during a recession results in a larger relative decline in demand. Dollars placed in the hands of government will enter the economy in full and are more likely to be spent on local services than dollars that remain in the hands of individuals.

During the last three budget years, legislators pared away tens of millions of dollars from the budget, impacting the full range of departments and programs. “We appreciate the difficult choices the Governor and the Legislature have to make,” states Kurt Wise, one of the authors of the report. “However, the state budget is already lean. Two thousand Mainers are losing their jobs every month. This is a crisis where we must draw on all our options. While the Governor’s budget has a small amount of revenue increases, it calls for very large cuts. For Maine’s economic future and fiscal health, we need a more balanced, long-term approach.”

Kurt Wise and Garrett Martin are policy analysts at the Maine Center for Economic Policy. Nicholas Johnson is Director of the State Fiscal Project at the Center on Budget and Policy Priorities in Washington, D.C.

MECEP Choices: Securing Our Future During An Economic Downtown