The new tax structure crafted by the Legislature and signed by Gov. John Baldacci last year reduces income taxes, improves the state’s business climate, helps government avoid future recession-related revenue roller coasters and reduces the overall state tax burden on 87 percent of residents. The repeal referendum — Question 1 on the June 8 ballot — must be defeated if Maine is to reverse its reputation as a tough place to grow a business and a family.
The plan does not lend itself to sound bites, and its opponents distort it by focusing attention on just one side of its equation. As a result, it is largely misunderstood. It does not address state spending, nor does it purport to do so. The biennial state budget is where spending can be — and has been — curtailed.
In simple terms, the plan reduces the state income tax from 8.5 percent to 6.5 percent, except for those earning $250,000 or more, who get a rate of 6.85 percent. That means bigger paychecks for Maine workers.
Since 90 percent of businesses in Maine file taxes in the same way as individuals and couples, they also will see savings. As Sen. Joe Perry of Bangor, an architect of the plan, said, that change “takes the bull’s-eye off us as one of the highest-taxed states in the nation.” In fact, it reduces Maine from the seventh-highest income tax rate to 20th among the states, one reason the Wall Street Journal called the reform the “Maine Miracle.” “No state has improved its economic attractiveness more than Maine has this year,” the financial newspaper said last June. A yes vote takes away that economic attractiveness.
To balance that revenue loss, the current 5 percent sales tax is broadened. Currently, about 45 percent of sales in Maine are not taxed. The new plan extends the sales tax to repair services, including the labor on auto repair; entertainment such as concert and movie tickets; and other services such as dry cleaning, pet boarding, limousine trips and storage unit rentals. Maine has one of the narrowest sales taxes in the nation, taxing 24 of 160 categories. That has meant the state relies heavily on the tax on auto and building material sales (which account for 35 percent of sales tax revenue), both of which dry up during recessions.
The plan also increases the tax on meals and lodging from 7 percent to 8.5 percent; $4 million of that new revenue will be devoted to tourism promotion, which has been shown to produce $8 of spending for every $1 invested. To put the meal tax in perspective, the cost of a $40 dinner bill will increase by 60 cents. Forty percent of that tax will be paid by out-of-staters.
Critics accurately note the plan ends itemized deductions on the state income tax. But they leave out that deductions are replaced by a credit, so 95 percent of Mainers will see lower income taxes, according to the Maine Revenue Service.
The Maine State Chamber of Commerce, and the Bangor, Portland and Androscoggin Chambers have endorsed a no vote on the repeal.
The tax reform bill is a complex piece of legislation, and it is easily demonized by those who highlight parts and ignore others. This plan makes Maine more competitive with other states for business development, and eases the burden on almost all of us. It must not be derailed.