Recent opinion pieces about the Maine tax law changes enacted by the Legislature and signed by Gov. Paul LePage have differed greatly in their impact on Maine taxpayers. I attended and testified at numerous public hearings in Augusta on the various tax changes. I agreed with some changes and testified against many others, not based on my party, but based on what I believed was sound tax policy and based on more than 30 years of experience as a former corporate tax director and certified public accountant.
Many opinions on Maine taxes have been based on incorrect facts or myths reinforced by the many taxpayers, legislators, economists and business groups that don’t understand the details of Maine’s tax structure. Most continue to grossly overstate the impact of income taxes and understate the impact of property taxes.
Maine Revenue Services reported to the Legislature’s taxation committee that, for 2009, state and local taxes on income and consumption were about the same at 28.3 percent and 28.4 percent of the total tax collections respectively, while property tax represented 42.7 percent of the $5 billion total.
Based on 2007 data collected by the U.S. Census Bureau, Maine’s property tax collections ranked as sixth highest out of the 50 states and D.C., based on its percentage of income. This compared to income taxes that ranked 17th highest and consumption taxes that ranked 21st highest.
The Maine Revenue Services data for 2009 reveal that the mix of taxes paid by the top 1 percent of Maine residents with income greater than $323,000 and the bottom 99 percent are very different.
The bottom 99 percent pay about the same in income and consumption taxes but pay significantly more in property taxes. On the other hand, the top 1 percent pay more in income taxes than both the consumption and property taxes combined. The data also illustrate that the top 1 percent paid state and local taxes at a combined effective tax rate that was 35 percent lower than the effective tax rate of the bottom 99 percent. In total, Maine’s tax structure was significantly regressive in 2009.
Based on both its ranking as compared to other states and its amount, the property tax should have been the first tax to be reduced if the budget allowed it. Rather than reducing property taxes, the Legislature increased property taxes directly by $22 million in 2011 and 2012 by reducing the property tax circuit breaker program by 20 percent. The circuit breaker program provides nearly 200,000 Maine residents with a partial refund of property taxes assessed or rent paid by families with incomes up to $86,600. In addition, property taxes will increase significantly in 2012 for the vast majority of Mainers because the Legislature did not fully fund local education.
While the Legislature made some minor individual income tax cuts for 2012, the property tax increases will be much larger than these income tax cuts for the majority of Mainers. For 2013, there were significant income tax cuts enacted; however, how those tax cuts will be paid for is a major unknown and likely will result in much higher property tax increases due to further funding cuts to local education and other programs.
The Legislature decided to cut income taxes, based in part on the myths that Maine’s top marginal tax rate of 8.5 percent was a major deterrent to economic growth and that most Mainers are taxed at that top tax rate. The revenue services’ data show, however, that only about 37 percent of Mainers who filed a tax return had any income taxed at the top rate and that the effective income tax rate for all Mainers was just 3.2 percent. These numbers also don’t include the thousands of low-income and elderly Mainers who don’t even file a return because their income is too low to file.
Based on these facts, why did the Legislature lower income tax rates and pay for it in part with property tax increases?
While there were some tax changes that will lower the income taxes for low- and middle-income taxpayers, the lowering of the top income tax rate will impact only the top 30 percent of Mainers, with a disproportional amount going to the top 1 percent. The wealthy also benefit from a large estate tax reduction that will impact a small group of millionaires. The claim that the estate tax changes would help preserve farmland is very weak. The IRS reported that in 2009 only 3.25 percent of taxable estate assets were farm assets. In addition, Maine law already has provisions to help spread out estate tax liabilities over several years for family-owned small businesses, including farms.
In 2010, I worked with Republicans to overturn a poorly designed Democratic “tax reform” law. Now the Republicans must be criticized for their tax changes that take Maine in the wrong direction and were not based on sound tax policy.
Albert A. DiMillo Jr. of South Portland is a retired corporate tax director and CPA with more than 30 years of tax experience.