AUGUSTA, Maine — Debate over the “death tax” is heating up in the State House as lawmakers consider proposals to change or eliminate the taxes levied on family members who inherit valuable estates, farms and businesses.
On Friday, several small business owners said that, contrary to claims from critics of Gov. Paul LePage’s budget plan, many farmers and families who are far from wealthy would benefit from the administration’s proposal to exempt from the estate tax any estates worth up to $2 million. The current exemption is $1 million or less.
“Some would have us believe that his would only benefit the wealthiest of Maine residents,” said Dan Beck, co-owner of the popular Waldoboro eatery Moody’s Diner. “If my bank account is reflective of the bank accounts of many small businesses, I can assure you we are not among Maine’s wealthiest residents, nor are my heirs.”
LePage has proposed expanding Maine’s estate tax exemption as part of a package of tax reforms contained in his two-year, $6.1 billion budget. The estate tax changes, which would kick in on Jan. 1, 2013, would benefit the heirs of an estimated 400 estates that would otherwise be subject to taxation under the current threshold of $1 million.
But opponents have labeled the governor’s proposal as another Republican attempt to lower taxes for the rich while requiring teachers, state workers and public employees to pay more into their retirement and health insurance plans.
“It is wrong to take another 2 percent of my pay to give tax breaks to the multimillionaires of Maine,” Tamra Keaton, a Department of Health and Human Services employee from Caribou, said during a recent protest rally at the State House.
LePage is not the only person in Augusta targeting Maine’s estate tax. On Monday, the Legislature’s Taxation Committee will hold public hearings on four bills dealing with the so-called “death tax.”
One measure, LD 423, would repeal Maine’s estate tax altogether while LD 898 would establish a 12-step, graduated system that would impose tax rates of between 1 percent and 12 percent for estates, depending on their value.
Rep. Jeffrey Timberlake, R-Turner, has proposed exempting farms from the estate tax. Timberlake’s family owns Ricker Hill Orchards, an apple operation that employs about 50 people.
Speaking with Beck at a press conference organized by the Maine chapter of the group Americans for Prosperity, Timberlake said many farmers are land rich but cash poor. If Maine’s exemption is not increased, his farm would be “taxed tooth and nail” during an estate transition due to the value of his land and equipment, he said.
Supporters of the current estate tax system insist, however, that the situation is not as bleak as the LePage administration and others suggest.
“The idea that a lot of small businesses have been largely impacted by estate taxes is a myth,” said Dan Coyne, fiscal policy analyst with the progressive Maine Center for Economic Policy.
Coyne pointed out that the roughly 600 estates affected by the current $1 million threshold represent a tiny percentage of the population in Maine. Coyne said he believes relatively few Maine businesses or farms are affected, and those that do only pay taxes on the value in excess of $1 million.
He called the estate tax “a fair and responsible form of taxation that only affects the wealthiest taxpayers.”
“The estate tax in Maine provides $30 million in funds to programs that benefit everybody: education, health care, public safety, environmental protection, you name it,” Coyne said.
Sen. David Trahan, a Waldoboro Republican who co-chairs the Legislature’s Taxation Committee, said Friday he believes there is a strong appetite among committee members — especially Republicans — to alter the estate tax.
“What we have found is there are a lot of problems in our tax code regarding the estate tax,” Trahan said.
A subset of the committee is currently working on the tax package contained in LePage’s budget proposal. Trahan said he expects that the committee will have a recommendation for the budget-writing Appropriations and Financial Affairs Committee on the estate tax and other major issues by the middle of April.
LePage has already put the Legislature on notice that he would veto any budget that makes major changes to the tax cuts, pension reforms and welfare reforms in his budget. Such a threat could be symbolic because legislative leaders will need to garner two-thirds support in both chambers to pass the budget, which is also enough to override a veto.
But Trahan said he has talked with the governor and understands that he merely wants to see a tax package that reduces the tax burden on businesses and families.
“If we can demonstrate that we have done that, I feel very confident that we can work with him” on a tax package, Trahan said.