The Maine Legislature, led by Democrats, recently passed a historic tax reform package that will cut the taxes of Maine people by $55 million. Next year, most Maine taxpayers will save between $100 and $500 on their tax bill. Maine people, except for State House Republicans, recognize this as a good deal. In fact, the Wall Street Journal called it the “Maine Miracle” in an editorial.
Incredibly, Republicans are trying to repeal this tax cut for Maine people. It is hard to believe that in these challenging economic times, with Maine families and businesses struggling, the “conservative party” wants working Mainers to pay more taxes next year, but that is exactly what they are trying to do.
While the tax reform package is full of complex tax law, its principles are easy to understand. A reduction of more than 20 percent in the income tax rate is paid for by applying the sales tax to a few discretionary items such as candy, movie tickets, amusement rides and certain repair services. It also modestly increases the tax on rental cars, meals and lodging, items that are paid for in large part by tourists from out of state.
Under the new law, nearly everyone receives a dramatic cut in their income taxes and pays the sales tax on a few additional items. When all is said and done, the average Maine person will pay about $170 less in taxes than under the old system. That amount is not miraculous, but it is money that goes right back into the economy. Paying lower taxes means families will have more money to pay the bills, build their savings, go out to eat or see a few more movies. All in all, it is a good deal for Maine people.
The benefits are not just for individuals. Ninety percent of Maine’s small businesses pay taxes under the individual income tax system. This means next year most Maine small businesses will pay substantially less in income taxes. Businesses will turn around and invest this money to grow their companies and create jobs.
For too long Maine’s high income tax has acted as a barrier for companies looking to locate here. Now, Maine’s income tax is in the middle of the pack, sending a message to the world that we are more than a beautiful place to vacation; we also are a competitive place to do business. With an unemployment rate of 8.3 percent, the need to attract new businesses has never been greater.
Still, the Republican Party is undertaking a statewide campaign to repeal this law. They claim that the tax relief is not enough and that the package has a negative impact on our “business climate.” I bet that most Maine people believe that any tax relief is a good amount and that giving them more money to spend as they choose does in fact dramatically improve the business climate.
The Legislature’s goal in fully debating and vetting an overhaul of our tax system was to put more money in people’s pockets while helping small businesses thrive. This is exactly the type of action we must embrace to get out of the recession and to continue strengthening our economy for years to come. By contrast, repealing this law now further damages our weakened economy and prevents Maine from attaining a needed competitive advantage.
A cynic might think that Republican opposition is pure politics. After all, it will be tough for their candidates to win elections during a national and state recession while Democrats delivered a few hundred dollars in tax relief to Maine people. Boosted by stimulus spending, the national economy is seemingly turning a corner. Maine needs to go in that same direction. We cannot afford to take a huge step backward by repealing a law that helps Maine people and the economy.
Sen. Joe Perry, D-Bangor, is the Senate chairman of the Legislature’s Taxation Committee.