AUGUSTA, Maine — While some states have raised taxes in response to the recession, Maine has “bucked the national trend” by passing a tax overhaul law, Gov. John Baldacci said Saturday.
The law, most of which takes effect Jan. 1, lowers the income tax rate from 8.5 percent to 6.5 percent generally. For those earning more than $250,000, the tax rate is lowered to 6.85 percent. Baldacci said the lost revenue is made up by expanding the sales tax to some items that have not been taxed in the past, and that more of the taxes will be paid by tourists.
While several states have raised taxes to balance their budgets as the recession took a massive toll on revenues, “I am proud to say that Maine has bucked the national trend,” the governor said in his prepared remarks.
California, Nevada and Massachusetts, for example, have raised their sales taxes, and Hawaii raised the personal income tax for top wage earners, according to the National Council of State Legislatures. The NCSL lists others that have raised or are considering raising taxes.
Baldacci also mentioned a Wall Street Journal editorial earlier in the week that calls the Legislature’s action the “Maine Miracle” that will help the state improve its economic attractiveness.
Baldacci said Maine also has had to exercise fiscal discipline in response to the economic freefall by adopting a budget that was smaller than the previous one, a rare occurrence in Maine.
At the same time, the government has sought to improve its attractiveness to business by expanding the Pine Tree Zone program, which allows tax incentives for businesses that locate in Maine and create jobs, said Baldacci. The program is expanded statewide instead of just in targeted areas.
The Republican response to Baldacci’s address summarizes exchanges that will likely be heard in the coming months if a people’s veto campaign challenging the tax overhaul succeeds in putting the matter before voters in November.
Rep. Kathy Chase, a member of the Taxation Committee, which drafted and refined the bill, calls it “the most radical tax overhaul in 40 years.”
Citing Maine Revenue Services figures, Chase said 85,000 Maine families “will be losers in this new tax system that resembles a game of tax roulette.”
But state revenue figures also show that nearly 580,000 families would get tax decreases, although the average amount of the decrease is smaller than the average for those seeing an increase.
Chase, R-Wells, said Republicans oppose the plan because they believe it’s irresponsible “to totally transform the tax system during a period of fierce economic turmoil. The impact on state revenues is too unpredictable right now and could set the stage for greater budget problems.”