Planning Decisions, Inc.

THE BOTTOM LINE FROM CHUCK LAWTON

Can We Get the Point of this Teaching Moment?

Published Saturday December 22, 2007

My most memorable teaching moment occurred many years ago when I was a farm league baseball coach. Late in a close game our opponents were threatening largely because our tiring ace starter was losing control, walking two straight. The next hitter due up was a slow swinging lefty, so I waved our left fielder over. “Kathy,” I hollered, “move closer to the line.”

Sure enough, the little guy lofted a lazy fly that drifted foul behind third base. Kathy trotted over and made the catch that ended the inning. A big grin came over her face, and she made a beeline for me. “Here it is,” I thought to myself, “the coach’s dream—acknowledgement for just the right advice at just the right time.”

“Mr. Lawton, Mr. Lawton,” Kathy shouted as she approached, “is the tan on my left arm the same as the tan on my right? Or should I turn more toward center field?”

What was I thinking?

In the face of current efforts to cut nearly $40 million from the state budget, those who argued for a broadening the sales tax during last spring’s futile effort to reform our dysfunctional tax structure must be uttering similarly rueful comments.

In the third quarter of 2007, taxable sales of building supplies in Maine were down 1.1 percent compared to the third quarter of 2006. This follows similar quarter over comparable quarter declines of 5.9 percent for the second quarter and nearly 11 percent for the first quarter, and marks the fifth consecutive quarterly decline for this sector. Clearly the slowdown in the housing market and the more recent credit crunch precipitated by the sub-prime mortgage crisis has reached Maine’s lumber and garden supply stores.

In addition, the third quarter of 2007 saw a 0.4 percent quarter over comparable quarter decline in taxable auto sales. This marked the fourth such drop in the last six quarters for this sector. Reluctance to borrow combined with rising fuel prices are clearly reaching into the state’s automobile sector.

These declines are not across the board, however. Maine’s personal income continues to inch upward slowly, third quarter meals and lodging sales were up 5 percent and taxable sales in food stores (all that stuff at the grocery store that is not classified as food and therefore exempted from sales tax) was up 4.8 percent in the most recent quarter.

Yet overall state sales and income tax revenues are falling below projections, and we must cut services to balance our budget, not because there is any change in the need for services, but because our revenue stream is so heavily dependent on so few items and therefore so volatile. And those items are subject to such wide swings because they are linked to macroeconomic forces utterly unrelated to the need for state police cruisers or health care for children.

As recently as the second quarter of 2005, sales of building supplies and autos made up 40 percent of Maine’s taxable retail sales. In the most recent quarter, their share had fallen to 34 percent. And this decline is not unprecedented. In late 1998 and early 1999, before the recent run up in real estate prices, these two sectors averaged 33 percent of the state’s total taxable retail sales.

In short, the current budget crunch—with all its recriminations about whose programs should be cut and why shouldn’t taxes be raised, or cut—has virtually nothing to do with the nature of our government, with its efficiency or its fairness. It has virtually nothing to do with our tax rates, whether they’re too high or too low, whether they favor one social group or another. It has, instead, everything to do with our tax structure. In a world of computer controlled brakes and steering sensors and GPS enabled directional instructions, we’re careening down an increasingly curvy road in an old jalopy with spongy steering, thin brakes and worn out shock absorbers. While we can’t get a new car before we swerve over the next rise, we ought to make a note to ourselves to think about just what we might learn from this most recent little budgetary adventure when we’re sunning ourselves by the side of the road in some more peaceful future.

COMMENTARY