Maine’s legislature passed its two-year budget earlier this month, and it includes two allegedly temporary taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. increases—one in the state sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. (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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