Tax reform package no panacea

By Stephen Bowen | Sep 19, 2009

That Maine citizens reportedly collected more than 60,000 signatures in order to force a public referendum on the LD 1495 tax package passed by the Legislature last spring is extraordinarily good news, if for no other reason than that it means legislative Democrats have failed in their ludicrous attempt to prevent a public vote on the proposal.

It is one thing to oppose a citizen initiative once it goes out to Mainers for a vote; it is quite another to actively campaign against efforts to even put it to a vote in the first place, as Maine’s Democrats did. A Legislature that is afraid of giving you an opportunity to vote on its handiwork is a Legislature with something to hide.

As it turns out, a careful look at LD 1495 tells you all you need to know about why the Democrats who passed the bill were so reluctant to let voters have their say on it.

The bill was passed with great fanfare, of course, and was hailed as the tax reform panacea long sought-after by policymakers in Augusta. It is “something extraordinary” they claimed, something “historic.”

But is it?

Not really. What the bill essentially does is lower one tax, the state income tax, and raise a whole host of other taxes in exchange. Yes, your income taxes, in most cases, will go down, but just about everything else you do or buy will become more expensive.

The bill raises restaurant taxes, for instance, as well as hotel taxes, rental car taxes, and the taxes you pay on the beer you enjoy at your local watering hole. Tourists pay many of these taxes, it is argued, and so raising those taxes is a good thing. The fact that all of these things will be more expensive for Mainers to do as well is, evidently, a burden we will just have to live with.

The bill also raises taxes on candy, but, this being government, candy must be carefully defined in the law. According to LD 1495, the term “candy” means “a preparation of sugar, honey or other natural or artificial sweeteners in combination with chocolate, fruits, nuts or other ingredients or flavorings in the form of bars, drops or pieces and that does not contain flour or require refrigeration.”

Huh?

Luckily, the good people at Maine Revenue Services have provided some examples on their Web site of what is to be taxed under the new candy regime and what is not. Chocolate bars are taxed, for instance, but Kit Kat, Twix, and Nestle’s Crunch are among the chocolate bars that, for some reason, are not taxed. Fudge is taxed, but chocolate covered pretzels are not. Gum and fruit snacks are taxed but Twizzlers are not.

Soft drinks, which are defined as “any nonalcoholic beverage that contains natural or artificial sweeteners but which does not include any beverage that contains milk or milk products, greater than 50 percent of vegetable or fruit juice by volume or flavored or unflavored soy milk, rice milk, almond milk, grain milk and similar milk substitutes,” are also taxed. Soda and sports drinks are taxed under this definition, but so is Pedialyte, which is used as rehydration treatment for sick children. Lemonade is taxed under the new law, but the chocolate drink Yoo-Hoo is not.

Revealingly, coffee drinks containing milk are not taxed, which will spare the proverbial latte liberal from having to pay his or her fair share. He or she will not have to pay a tax on yoga classes either, or for the use of a computer at an Internet cafe or for ski lift tickets for a weekend at Sugarloaf. Boat shows are taxed, though, as are amusement parks, carnival rides at state fairs, comedy shows and, unbelievably, haunted hay rides.

And these people want to run health care?

All of this would be laughable if this shift and shaft tax bill didn’t do real harm to Maine’s economy.

One of the bill’s most destructive provisions is its replacement of standard and itemized deductions with a single refundable household tax credit, which is only available to Maine residents. This attempt to shift Maine’s tax burden to those living outside our borders could have devastating consequences.

Part-time residents do not qualify for the tax credit, for example. This means that recent college graduates returning to Maine to live and work, for instance, could be hit with a tax penalty of up to $2,200 unless they arrive on Jan. 1. If they have residency in another state at any point during the year, they are regarded under the law as part-year residents and do not qualify for the tax credit.

Welcome home recent college grads!

Nonresidents do not qualify for the tax credit either, which means that people who live outside of Maine but have income from Maine sources, and there were 55,000 such tax returns filed last year, will face a massive tax penalty.

Why should you, as a Maine resident, care?

For one thing, this provision of the bill clearly violates the U.S. Constitution, which, courts have ruled, prohibits states from enacting tax policies that discriminate against nonresidents. It is for this reason, for instance, that nonresidents cannot be charged a higher rate on their property taxes.

Worse still, though, will be this provision’s effect on the Maine economy. Workers living on the New Hampshire side of the border will be discouraged from working in Maine, for instance, further complicating for Maine businesses the challenge of finding top-quality employees. Businesses headquartered outside of Maine will have yet another disincentive from investing here, further reinforcing Maine’s reputation as a state openly hostile to business.

There is also, of course, the real threat that other states will retaliate with tax shifting policies of their own, potentially costing Maine’s businesses and workers down the road.

In summary, LD 1495 is exactly what its critics said it was, yet another broken promise of tax relief. Its repeal, therefore, is worthy of strong consideration, despite what the Democrats say.
Comments (1)
Posted by: Assistant Librarian CSRR Nichols | Sep 19, 2009 15:36

Thank you for explaining the real story behind the tax bill.



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