AUGUSTA, Maine — Gov. Paul LePage has submitted a budget with $203 million in tax cuts over the next two years, but the makeup of those cuts that become law will likely be significantly different than he has proposed.
“I don’t see how there will not be changes,” said Sen. David Trahan, R-Waldoboro, the co-chairman of the Taxation Committee. “There are always changes in the budget, and we will take our lead from appropriations on how much we will have for tax relief, and we will want to make sure the tax relief goes to Mainers.”
Trahan said the governor deserves praise for proposing a significant reduction in taxes, and he believes there will be substantial tax cuts, but he does not believe the proposals of the governor are targeted enough to Mainers.
“One in particular, the bonus depreciation, I want to make sure the bulk of that money stays in the state of Maine,” Trahan said. He is concerned that as drafted, a lot of the benefit will go to multistate corporations and not to help create jobs in Maine.
Rep. Seth Berry, D-Bowdoinham, the lead Democrat on the tax panel, said the adage that the governor proposes and the Legislature disposes is in play. He said members of both parties are concerned that the plans proposed in the budget may not be the best ways to provide tax relief.
“Windfalls for the very wealthy or tax giveaways to primarily out of state corporations are not effective economic development,” he said.
Berry said he shares Trahan’s concern that the business tax cuts should be more focused to make sure they help Maine companies. He said tax breaks should be as targeted as possible to create jobs, and he does not think the plan proposed by the governor meets that goal.
Rep. Gary Knight, R-Livermore Falls, the co-chairman of the committee, said he supports the governor’s package, but acknowledges it may have to be modified or even reduced as the budget process continues.
“I support his initiatives and want to do what we can to bring balance and bring jobs and growth to this economy,“ he said. “The only way we are going to do that is to reduce the tax burden.”
Knight said the business tax cuts need to go further. He wants to allow companies to carry forward losses to maximize the impact of the reductions. He said lower taxes mean business owners have money to invest in their businesses and create jobs.
Sen. Richard Woodbury, I-Yarmouth, serves on the tax committee and is an economist. He praised the thrust of the governor’s proposal saying the tax burden needs to be reduced to stimulate job creation.
“Many of the elements of this, I think, are exactly going in the direction Maine should go,” he said. “It does come down a bit to whether the affordability is there right now.”
Woodbury said that while some on the committee believe the property tax burden needs to be addressed first, he thinks the priority should be lowering the top income tax rate.
The timing of the tax-related provisions of the budget are also a concern of some on the panel. Some of the proposals are effective this year and others not until 2013. It proposes lowering the top personal income tax from 8.5 percent to 7.95 percent, but not until 2013.
It also proposes the state use the federal level for standard deduction and for the personal exemption starting in 2012.
The big ticket items for this tax year are business tax deductions. The budget proposes the state conform to the federal amounts for both bonus depreciation rates and the increased amount of expensing. 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.
The budget also proposes the state allow businesses to use the bonus depreciation levels allowed in federal law for this year and next. According to Maine Revenue Services, about 14,000 individuals and 3,000 corporations claim depreciation or expensing every year.
Knight said the tax committee expects to hold several work sessions on the proposals as the Appropriations Committee is dealing with other budget items. Trahan agreed and said the scope of the package may have to be reduced and that means the tax reductions will have to be prioritized to have the most impact on stimulating growth.