Michigan not alone in tax reform needs

Stateline.org reports on another state, Maine, that is facing similar problems to those in Michigan — flagging state revenue due to a shift in how people spend money and hard economic times. Unlike Michigan, however, the legislature in Maine has recognized the problem and is putting a solution in front of voters.

The need to reform state tax systems is common all around the country:

Maine’s vote highlights a discussion taking place in many state capitals. The sharp decline in tax revenues during the past two years has drawn attention to the volatility of state tax structures. The long-term solution, many state officials say, is moving toward a stable, diverse revenue system that reflects the changes in a state’s economic base over time. Baldacci calls it “a tax structure for the 21st century.”

Most states are putting off the difficult decisions about restructuring their tax systems, instead responding to the urgency of the financial crisis by raising taxes, cutting spending or both. Oregon and Rhode Island are two exceptions. In Oregon, voters in January approved reordering the state’s income tax structure to include a new, higher tax bracket on the wealthy and a higher tax rate on corporations. In Rhode Island on Friday (June 4), the General Assembly approved a broad restructuring of the state income tax system, trimming the top tax rate from 9.9 percent to 5.99 percent.

The Maine plan, which will be voted on today, would expand the sales tax to cover many types of services not previously covered. But it would also eliminate the state’s graduated income tax, something Michigan does not have — and something many advocate is necessary for Michigan to raise the revenue to prevent devastating cuts in social services.