Maine moving forward: tax reform

By Rep. Ed Mazurek | Apr 14, 2009

In March, the Legislature got its first look at an exciting tax reform package that will undoubtedly change the way Maine does business. I am very excited about what this package holds and what it will do for the residents of this great state. Here is an overview of the plan as drafted.

The tax reform plan would reduce the tax burden for Maine people by more than $75 million every year, in part by lowering the income tax rate. By reducing the income tax rate from 8.5 percent to 6.5 percent, Maine residents would see hundreds of extra dollars in their paychecks throughout the year. That is money you and your family can spend however you choose.

The plan would also lower the taxes and capital gains paid by Maine’s small businesses, which in turn would spur growth, hiring and jobs.

Most retirees would see benefits from this plan because their fixed income would be taxed at a lower rate, slowing the exit of people to lower taxed states. If we are successful in passing this plan, Maine would go from having one of the highest income tax rates to the middle of the pack.

As you have probably read in the news, the state budget has been especially difficult to balance this time around. With the national economic downturn, the Legislature has confronted one budget shortfall and is about to work on another in order to make it through the current fiscal year and the next two fiscal years.

The reason we are in such a tough spot at a time when we need to help people the most is because we rely too heavily on income tax and a very narrow sales tax base. In fact, the sales tax base we rely on for income is one of the narrowest in the country with other states taxing many more items.

By having a narrow sales tax base, we are expecting very few items to carry our income needs. We rely largely on the purchase of cars and building materials to sustain us. That may work somewhat when the economy is strong, but when times are tough, one of the first things to drop off is new car sales and new construction starts – meaning that just when Mainers need the most help, the state is least equipped to provide it.

To pay for tax relief for Maine people, we would transfer more of the liability to nonresidents. By broadening the sales tax base and exporting much of the cost to visitors, who are already getting a good deal, we can bring our burden down. An increase in the meals and lodging tax, along with adding a sales tax to ski tickets, movie passes and other recreational and discretionary items, is smart as it is most likely a tax the visitor would have paid in their home state.

In a recent poll, nearly 70 percent of Maine people said they would support increasing the meals and lodging tax to reduce the income tax for residents.

By choosing to add a sales tax to things paid for in large part by nonresidents, we can fund this tax reform plan. For the vast majority of Maine families and small businesses, even after paying sales tax on these few extra items they will still have hundreds of extra dollars in their pocket each year. Many other states have done this already and the longer Maine waits, the less competitive our state economy will be.

I am thrilled to be a part of the process to bring real and meaningful tax reform to our state. This is why I wanted to go to Augusta as your representative and I will work tirelessly for a fair and equitable plan. You will hear a lot about the proposed plan and the debate that takes place in the next few weeks. In the end, the state of Maine and its residents will be better served with a modern tax structure and a lower tax burden.
Comments (4)
Posted by: Dale Hayward | Apr 21, 2009 15:06

Having been a former State Auditor for four years: that was enough to learn how self serving the political pawns play the hide and seek games. Where is the 130 million that DHHS lost: They got away with it? Or what is the truth. Accountibility in Government be it local, county, state or Federal is impossible.....If you want an eye opener just go to The Maine Center for Public Policy and see what the wages and benefits are for our public employees who are fighting like crazy to keep us from seeing. In some cases the benefits, which are listed is close to their wages. The State add in many cases as much as 20 per cent plus or minus of the employee's pay to their retirement. How many businesses can do that. Look at local governments and see what they pay for employee's health insurance: Rockland is 85%s. Try getting a job in government: only if you know someone.....inside track.......

Posted by: Thomas Carter | Apr 20, 2009 22:43

MAINE VOICES (PPH 4/20/2009)

Tax reform bill wouldn't bring the benefits its backers claim for it

Most of the money would go to higher-income Mainers, and others would see their taxes rise.


April 20, 2009


Albert A. DiMillo Jr. is a resident of South Portland.
I am a retired corporate tax director and certified public accountant with 30 years of tax experience.

During the past few weeks, I have noted that the Portland Press Herald has printed four opinion pieces, including a column by Ron Bancroft, all endorsing the proposed Maine tax reform bill, LD 1088.

I would be surprised if any of those writing those endorsements even read the actual bill, and I am 100 percent certain not one actually did the detailed tax calculations necessary to properly analyze the impact of the bill.

Like most tax law, the devil is in the details – and the details of this bill are wrong for many middle-income and elderly Maine residents.

One could go into great detail as to why the increases in the various sales taxes on services and the increases in meals and lodging taxes are unfair, disproportionately levied against low-income and middle-income groups and will create hardships for small businesses.

But instead we can just focus on the income tax changes, which have not received much attention.

Using IRS data on Maine taxpayers released in 2008, one is able to extrapolate a reasonable estimate of the impact in year 2010 of the proposed legislation on various income levels of Maine residents.

Based on this IRS data, the top 7,000 taxpayers in Maine (which represents about 1 percent of Maine taxpayers) would have a net tax cut of about $55 million.

If the reported net tax savings to all Mainers of $75 million is correct, then 73 percent of this savings would go to the top 1 percent of Maine taxpayers, who earn more than $350,000 a year.

Whether the net savings is correct is another issue.

The examples of savings prepared by the bill's sponsor, Rep. John Piotti, D-Unity, which were designed to compare an individual's taxes under the current law and the proposed legislation, have numerous calculation errors that significantly overstated the tax savings.

If the Maine Revenue Services estimates include these errors, then the savings would be overstated by millions.

The proposed income tax structure eliminates itemized deductions.

The impact of this is that almost all taxpayers with incomes between $40,000 and $200,000 who have substantial itemized deductions (mortgage interest, property taxes, medical deductions, charitable contributions and other miscellaneous deductions) would see a tax increase.

Many families who purchased homes in the past few years and have a large mortgage will see a tax increase.

Another either planned or unplanned impact of the design of the proposed legislation is that married couples with no children are more likely to save taxes than those with children.

The more children you have, the smaller the chances of saving taxes.

The proposal also eliminates the additional deduction allowance given to the elderly and the blind, who don't itemize deductions.

The loss of a medical itemized deduction will also create a major tax increase for some taxpayers with large medical expenses, many of those being elderly.

The claim that the cut in the Maine income tax rate will stimulate economic development is more a myth than a fact. State income tax is a very minor factor in deciding to locate in Maine.

Much more important are labor rates, health care costs, utility costs, transportation access costs, vendor and supplier impacts, governmental factors, environmental considerations and overall operating costs.

In addition, the state income tax cut is very small when combined with federal taxes. The current top marginal combined federal and Maine income tax rate is 43.5 percent.

Under the proposed law, the combined rate would drop to 41.5 percent, or only a 2 percentage-point decrease, about 4.8 percent of the total marginal income tax burden.

Any economist who says that amount of increase in after-tax cash will have any significant impact on investment would believe that thousands of Mainers will rush to the Macy's famous 4.8-percent-off sale at the mall.

I agree tax reform is needed, but the proposed legislation is worse than the current law.

It gives disproportionate windfall tax cuts to taxpayers with incomes over $350,000, while increasing taxes on many middle-income families and the elderly.

Posted by: Sumner Kinney | Apr 16, 2009 09:35

Right on the money. Just the opposite of what we should be doing. Why dont the pols get that?

Posted by: Robert Nichols | Apr 16, 2009 05:42

A TAX reform is admirable, but until Maine has a real SPENDING reform we're just playing a shell game with the burden.

It's easy to play the numbers game and think that if we increase, for instance, the meals tax there will be no effect, but the more our meals cost the less likely we and outer staters will eat out, will spend as much for the food, and will patronize the restaurants as much. Then apply that to lodging, ski tickets and on an on. It won't stop and it won't be without side effects. We will end up shrinking our one major industry (tourism) in order to fatten our other major industry (state government). We should be doing the reverse.

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