Many people are beginning to wrap their minds around the House Republicans’ proposed destination-based cash-flow tax and what it means for tax reform. Most people are still looking into the tax’s impacts on trade and how...
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- Maine’s Not-So-Beautiful Sunset
Maine’s Not-So-Beautiful Sunset
Maine’s legislature passed its two-year budget earlier this month, and it includes two allegedly temporary tax increases—one in the state sales tax (from 5 to 5.5 percent) and another in the leisure tax (from 7 to 8 percent; levied on lodging, bars, and restaurants) as a way to close the state’s $880 million budget gap. Maine’s governor, Paul LePage, vetoed the budget on Monday because of the tax increases and an $18 million cut to proposed education spending. Legislators quickly overrode that veto on Wednesday. The tax hike is set to expire in June 2015.
That June 2015 date is something we refer to as a “sunset clause.” A sunset clause provides that a law, in all or in part, will terminate unless lawmakers explicitly extend the deadline. In theory, this is good because it forces lawmakers to re-evaluate legislation over time. Unfortunately, this isn’t how they actually function. Sunset clauses often show up in the tax code to make a tax increase “temporary.” Those tax increases rarely end up being temporary. Time and time again we’ve seen allegedly temporary changes don't always expire as promised when legislators face a revenue shortfall or political pressure (examples include Arizona, Delaware, Minnesota, and North Carolina).
We’ve got two problems at play here. First, temporary tax changes are poor policy because they make it hard for taxpayers to effectively budget for future years since they don’t know if and when tax laws may change again. Though stability is something the tax code should embody, these temporary-to-permanent changes aren’t the kind of permanence for which we strive. Tax policy changes should be well thought-out before being enacted; they shouldn’t be a year-to-year strategy to close a budget gap.
Second, sunset clauses rarely function as a way to re-evaluate existing laws. The Washington Post amusingly and accurately dubbed them “democracy’s snooze button.” Even though they were originally meant to act as “expiration dates forcing [lawmakers] to reconsider old laws,” they’re often just extended without much consideration. Politicians shouldn’t dub tax increases as “temporary” as a way to sell them to the public if they were never intended to be temporary in the first place.
More on Maine here.
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The Tax Policy Blog is the official blog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.
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