‘A Big Income Tax Cut’

Posted June 23, 2009, at 5:56 p.m.

How impressive is it that Maine lawmakers cut taxes despite the national recession? The conservative Wall Street Journal called it the “Maine Miracle.”

“No state has improved its economic attractiveness more than Maine has this year,” the paper’s editorial page said Tuesday. Republicans, apparently more intent on scoring political points than helping Maine families and businesses, want to undo this work.

Last Thursday, Maine Republican Party Chairman Charlie Webster, along with Senate Minority Leader Kevin Raye and House Minority Leader Josh Tardy, filed an application with the Secretary of State’s Office to repeal the tax reform bill passed by lawmakers the previous week.

The centerpiece of the package is a reduction in the state’s top income tax bracket, a long overdue move that will lower the state’s traditionally high tax burden. The top rate will go from 8.5 percent to 6.5 percent for incomes up to $250,000 a year. Income over that amount will be taxed at 6.85 percent.

“This is a big income tax cut, especially given that so many states in the Northeast and East — Maryland, Massachusetts, New Jersey and New York — have been increasing rates,” the Wall Street Journal wrote, noting that Maine’s tax will drop from seventh to 20th in the country.

Lowering the income tax also helps the many Maine businesses that file individual returns and encourages investment in the state, a likely reason the Bangor and Portland Chambers of Commerce supported it.

To balance the package — at a time when a recession has wiped out even the thought of budget surpluses — the sales tax was broadened, the meals and lodging tax raised and other small changes made. Broadening the sales tax base is necessary to stabilize state revenues, but it does mean Maine families will pay more sales tax, although this will be more than offset by lower income tax payments for most.

GOP Chairman Webster, who is leading the repeal effort, says the legislation harms the poor. This is an odd criticism because, at the behest of the governor, the tax reform package, which had been approved by the Legislature, was revamped to include a refundable earned income tax credit specifically for Mainers with low incomes.

Another target of Republican ire is the extension of sales tax to car repair labor (parts are already taxed). While this will hurt some families, those with the most expensive cars usually have the largest repair bill, so they will continue to pay more in taxes.

A provision levying the sales tax on candy that does not contain flour, while exempting that which does, is odd, but matches with a definition of candy that is part of a national effort to standardize tax definitions.

Calling the bill “An Act to Increase Taxes for 85,000 Maine Families,” Rep. Tardy focuses only on the negative effects of the legislation, which are outweighed by the benefits that will be realized by hundreds of thousands of families.

In the words of the Wall Street Journal, in Maine “tax cutting to promote growth and attract jobs is back in fashion.”

Repealing tax reform isn’t only out of fashion, it will shortchange Maine businesses and families.

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