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January 7, 2013

What Yarmouth's Independent lawmaker sees ahead

photo/TIM GREENWAY
photo/TIM GREENWAY

The rearview mirror

As a fellow with the Federal Reserve Bank of Boston in 2009, Dick Woodbury offered a critique of Democratic-backed Maine tax reforms. Though he offered only measured criticism of the Democrats' tax reform in his Federal Reserve paper, he was far more blunt with Mainebiz.

"It was way too complicated, and relied on an extensive array of changes in exemptions and deductions that no one really understood," he says. "And even with that, they only reduced the 8.5% top rate to a 6.5% flat rate. For most people, it didn't make the exercise worth doing."

And when LD 1495 went to the ballot, it was defeated by nearly 2-1, something Woodbury said would be the fate of any tax reform plan brought before the voters.

"It's easy to attack," he says. "What we need is consensus from a broad range of stakeholders — including business and municipalities, both parties and the governor — before we pass the bill."

Woodbury was also around for the Republican-inspired tax cuts of 2011, often described as "the biggest tax cut in Maine history," and makes it clear he wasn't impressed with that effort, either. It was a primary reason he voted against the biennial budget that passed by two-thirds, garnering support from both Republicans and Democrats.

If the Democrats' tax reform bill was too complex, the Republican tax cut was too unfocused, he says. "If the problem is that our top rate is too high compared to other states — and I think it is — then this doesn't do much of anything at all."

The numerous tax provisions in the Republican plan include slashing the estate tax, increasing personal exemptions and deductions, removing tax liability for 70,000 Mainers, and an array of other provisions. But it misses the central point, Woodbury says. A half-percent top rate reduction, he contends, is hardly worth doing.

Policy matters in the genes

Dick Woodbury has never run as anything other than an Independent, though his father, Robert Woodbury, who served as chancellor of the University of Maine System from 1986-93, ran as a Democrat for governor. So while he followed his father into both academics and politics, he's done it in his own way.

Family conversations included his two brothers and set a tone that public service was compatible with getting ahead in a career, says Woodbury. The elder Woodbury, who died in 2009, “was pretty influential in state policy circles” beyond university affairs, and that also serves as an example.

“It seemed that someday it might be exciting to see how things work” inside government, he says.

When the Yarmouth House seat opened up through term limits in 2000, Woodbury decided it was time.

In the Legislature, he caucuses with both Democrats and Republicans, and says he's “always felt welcomed” in both, though when partisan tensions are flaring, he's occasionally asked not to attend. In fact, until Angus King began his independent run for the U.S. Senate, Woodbury says, “Nobody asked me what party I caucused with.” And the answer really is both — though “I naturally tend to spend more time with the majority party.”

When he was first elected to the Senate in 2010, each party requested a committee assignment for him. Republicans picked the Judiciary Committee, while the Democrats requested Taxation, where he'd already served — choices that left him bemused.

“The Republicans did that knowing that I didn't agree with them on social issues, such as abortion,” he says, “and the Democrats must have known I didn't support their approach to tax reform.”

Dick Woodbury, an Independent from Yarmouth who's been elected to three legislative terms in the House and two in the Senate, is now settling into his most recent Senate committee assignments: Insurance and Financial Services, and Marine Resources. We took the opportunity to ask Woodbury, an economist, for his predictions about how the new Legislature, now controlled by Democrats after two years of Republican leadership, will undertake its work — including the hot-button issues of taxes and health insurance. He also explains why he disagrees with both parties on some important issues, such as tax reform, and why there's a better way to get what both sides want.

Woodbury is not a typical legislator. An economist with academic credentials, he has a real zest for the fine points of public policy. After six years in the House from 2000-06, he took a term off, during which he was a visiting fellow for the Federal Reserve Bank of Boston. There, he produced a critique of Maine's tax system that included a lengthy analysis of LD 1495, the ambitious 2009 tax reform plan pushed through by legislative Democrats with the reluctant support of then-Democratic Gov. John Baldacci.

It was ultimately scuttled by a June 2010 people's veto referendum organized by a group of Republican senators whose votes hadn't prevented its passage at the State House. The June vote was widely seen as the launching pad for the Republican takeover of the Legislature that November, while assisting in the election of Gov. Paul LePage.

Income taxes

Republicans: Defending all their tax cuts

Democrats: Trying to scale them back

Woodbury: Given continuing dismal revenue projections, cutbacks in tax breaks may be inevitable, he says, but he's ready to present an alternative route should the partisans ask for one.

He believes that "the Republicans could keep their tax cuts, the Democrats could get new programs, and the tax burden for residents could drop," he says. The biggest losers would be out-of-state visitors and seasonal residents, and he's fine with that.

"They impose demands for services from the state, but they pay very little," he says.

Last year, the Republican-controlled Legislature passed a bill calling for a 4% flat tax rate that would be funded by future surpluses over many years. Why not establish a 4% rate now? Woodbury asks. To skeptics who think that's impossible, he drills down to a fundamental economic premise.

"What is the strength of the Maine economy today?" Woodbury asks, and answers his own question. With the decline of manufacturing, once the state's economic backbone, it's clearly tourism and the seasonal residents who flock to Maine both summer and winter.

"But the biggest element of our tax system, the personal income tax, is paid only by residents — not even the 'six months minus one day' residents who go to Florida," he says. The income tax accounts for more than 40% of all state and local taxes, exceeding the property tax and dwarfing sales tax proceeds.

Woodbury would prefer a dramatic cut to 4% to change the state's image around the country. He cautions that, in this respect, state and federal tax policy is very different.

"We can raise federal income taxes without fear that lots of people are going to move out of the country," he says. "With states, it's different."

Woodbury believes the 8.5% rate deters businesses from moving here, even the young entrepreneurs who would otherwise embrace Maine's high quality of life.

To get to 4%, Woodbury would raise some consumption taxes where Maine ranks low, noting that its 7% lodging tax is the lowest in the nation, while in Florida, it often reaches 15%, depending on the county. And he's open to extending the sales tax to some new areas, though not the huge list presented by Democrats in 2009.

"You do need to find revenue. We do have needs that aren't being met in the current budget," he says.

Tax relief programs

Republicans: Maintain reductions in revenue sharing and school aid

Democrats: No announced position on state aid programs

Woodbury: He'd take a look at the scatter-shot state programs that transfer money back to municipalities, businesses and individuals, including school aid, revenue sharing, the homestead exemption, the circuit breaker, BETR, and many more —all in the name of providing property tax relief. This spending consumes nearly half the state budget, and Woodbury finds it "incredibly inefficient."

Consider, he says, school aid which, at nearly $1 billion a year, rivals the Department of Health and Human Service for spending state dollars.

"We want it to go homeowners, but it really benefits Wal-Mart more than it does the guy struggling to make ends meet," he says.

Perhaps the homestead exemption could be used as the principal vehicle for helping homeowners, he says. "We have, what, $10,000 a year for homeowners off their assessment. Florida has a $50,000 exemption, and it's incredibly popular."

While he admits that pulling off such a wholesale reordering of state priorities would be a difficult feat, he believes it's preferable to the continuing tug-of-war between the two parties over taxes.

Health insurance

Republicans: Will consider changes to Public Law 90, health reform legislation they passed that attempts to spur competition by allowing small businesses to band together and negotiate better rates, which has disproportionately increased premiums among rural businesses and older residents.

Democrats: Advocate rollback of most PL 90 components, including rate deregulation and a ban on Bureau of Insurance oversight.

Woodbury: Highly critical of PL 90, he objects to its go-it-alone approach that has also bedeviled Maine's system for public employee retirement and workers' comp. PL 90, for instance, contains a high-risk pool funded by a tax on policyholders. Instead, he says, "We should use the reinsurance provisions of the Affordable Care Act," which employ a completely different method.

Woodbury says Maine should welcome a health insurance exchange, not fight it.

"We'll finally solve the problem of low-income workers not being able to find affordable private insurance," he says. With federal subsidies, no longer would Mainers who earn "a dollar over Medicaid limits fall off a financial cliff."

Finally, he objects to the law's provision forbidding the Bureau of Insurance from reviewing annual rate increases less than 10%. "There's no reason for that. We need to let the bureau do its job," he says.

Beyond that, Woodbury hazards few predictions of how the legislative session will go, reflecting a professional caution common to economists that extends even to predicting his own political future. But if another opportunity like chairing the LD 1 select committee on tax reform comes along, he'd grab it.

"There's nothing like being asked to do an important job, with the instructions from leadership that things need to get done," he says. "If you can change your state for the better, why wouldn't you want that opportunity?"

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