AUGUSTA, Maine — Gov. Paul LePage’s proposals to cut taxes in the next two years will “jump-start” job creation more than anything else now under consideration by lawmakers, including regulatory reform, according to business leaders Monday.
“Regulatory reform goes to a few companies; tax reductions go to every company, so I think tax reductions are more important,” said Chris Hall, vice president of Portland Regional Chamber of Commerce.
He said cutting taxes overall by $203 million will mean many businesses will have more money to invest in job creation because so many Maine employers pay their taxes through their personal income taxes.
“While everybody will benefit from lower income taxes,” Hall said, “small businesses pay state income taxes through their personal returns, so anything that reduces those costs goes to the small business who then can reinvest in their company.”
He said owners of small businesses will have a ready source of cash for investment in their companies, and in addition to the tax rate reduction, changes in how a company can depreciate or expense new equipment will help spur investment and expansion.
“This is just hugely important for Maine businesses and even more so for small business,” said David Clough, Maine director of the National Federation of Independent Businesses. “And lowering the tax rate is very important when so many small businesses are taxed by the tax on their owners.”
Finance Commissioner Sawin Millett said the budget proposes lowering the top personal income tax from 8.5 percent to 7.95 percent. He said that was an important part of Gov. LePage’s effort to improve the business climate.
“The conformity of section 179 expensing is also very important, and we think [it] will spur more investment by Maine businesses in growing our economy,” he said.
That section of federal income tax law allows a company to write off the cost of new equipment and machinery in the same year it is purchased instead of depreciating the cost over a period of years. State law allows only $25,000 a year to be claimed under that provision. The budget proposal would match the federal limits for 2011 and 2012, which are $500,000 this year and $125,000 in 2012 for expensing and bonus depreciation.
“This is something small business has long complained about,” Clough said. “ This will be a big help to all businesses.”
Maine State Chamber of Commerce President Dana Connors agreed. He said when you add up all of the proposed changes, it will mean a significant impact to the tax bills of Maine employers.
“All of these will provide significant tax relief, and that will go to the bottom line of business owners,” he said. “I have to think that will mean more investment and more jobs.”
Connors said while most of the tax proposals are a help to business, the continuation of a 10 percent reduction in the business equipment tax reimbursement program from the last budget will be a concern for some companies and business owners.
“But that is certainly more than offset by the tax cuts being proposed,” he said.
Some business owners were quick to react to the proposal. Duane Gushee, president of D&G Machine Products in Westbrook, said the change would encourage investments by companies like his.
“This initiative makes it more affordable to do business in Maine and allows us to be more competitive, “he said.
Chip Roche, president of Newfab in Auburn, said the proposal is a “common sense” approach to encouraging business growth. The company contracts manufacturing of machinery and equipment.
“It improves the competitiveness of Maine businesses and encourages investment and job growth,” he said.
Millett said other tax provisions that will benefit all Mainers also will be of particular benefit to business owners. He said conforming to the federal standard deduction and personal exemption will lower tax bills, and eliminating the alternative minimum tax will help simply taxes for all.
“And by changing the estate tax exclusion, we hope that will encourage business owners to pass on their business and keep that wealth here in Maine,” he said.
Starting Jan. 1, 2013, the state will raise the estate tax exclusion from $1 million to $2 million, which is well below the federal estate tax exclusion of $5 million.
Connors said he hoped that change will encourage Mainers with wealth to keep it in the state, but he is not sure it will be enough for some.