A Tax Break Denied

Posted Nov. 13, 2009, at 5:17 p.m.

On Jan. 1, nearly every Mainer would have had a bigger paycheck. Now, because of a people’s veto petition, that won’t happen.

You can send your thank-you note to the Maine Republican Party, the Maine Green Independent Party or the more than 56,000 of your neighbors, and perhaps friends, who signed the petition to deny Mainers an income tax break. Better yet, save it for June and vote no on the repeal.

After years of hearing about Maine’s high tax burden, lawmakers earlier this year lowered the state’s income tax rate while broadening the sales tax base to provide greater stability. The fix, as is often the case with government, wasn’t perfect, but going back to the old system, which is what a vote for the repeal will do, is bad for business and bad for taxpayers.

Under the tax reform package passed this spring, 95 percent of Maine people would see a reduction in their income taxes, according to the Maine Revenue Service. Because the reform was to go into effect on Jan. 1, this meant that working Mainers would have had a bigger paycheck because their income tax withholdings would have been lowered.

But don’t take government bureaucrats’ word for it. The conservative Wall Street Journal and Tax Foundation extolled the tax changes. “No state has improved its economic attractiveness more than Maine this year,” the Journal said in a June editorial titled “Maine Miracle.”

The Tax Foundation, which has long criticized Maine’s high tax rate, said, “The reform effort is a positive step forward.”

So why would people want to undo it? Misunderstanding mostly, plus a dose of partisan politics.

The Republicans who back the repeal effort say most people won’t see a tax reduction. Again, don’t trust government bureaucrats to refute this. The Wall Street Journal says the changes will drop Maine’s income tax rate from seventh to 20th highest in the country.

Lowering the income tax would also help 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, the sales tax was broadened, the meals and lodging tax increased and other small changes made. Broadening the sales tax base — Maine had one of the narrowest in the country — is necessary to stabilize state revenues, but it does mean Maine families will pay more in sales taxes. This will be offset by lower income tax payments for most.

Concerns, from both Republicans and Greens, that the changes harm the poor are especially confusing. At the behest of the governor, the legislation included a refundable tax credit specifically for Mainers with low incomes.

Naturally, most Mainers would prefer that their taxes were simply reduced. But they also expect a lot of services from their government — proposals to cut government programs or reduce services result in packed hearing rooms and howls of protest. They can’t have both, so the tax reform bill was a good balance.

Repealing it will shortchange Maine families and businesses — literally.

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