AUGUSTA, Maine — The Democratic leader in the Maine House on Thursday introduced his proposal for a fairer tax code. House Democratic Leader Rep. Seth Berry said his bill will lead to the state’s wealthier residents shouldering a larger portion of the tax burden and more tax revenue for state coffers.
Berry’s bill, LD 1113, seeks to establish the same effective tax rate for low-, middle- and high-income taxpayers. In the process, Berry says his bill can generate up to $200 million in revenue for the state during the upcoming two-year budget cycle. That accounts for about half the revenue the state is forgoing over the next two years as a result of state income tax cuts passed two years ago by the then-Republican-led Legislature. Those tax cuts took effect at the start of the year.
“I really wanted the goal to be clear, that it would benefit the greatest number of people, flatten the tax structure and make sure everyone was chipping in at roughly the same amount per dollar,” Berry said. “Due to loopholes as well as sales and property taxes, the very wealthiest actually pay the lowest tax rates in Maine. So, we need to fix this and ask everyone to chip in equally.”
Under the bill, Maine residents making $250,000 or more would be charged a “tax equalization assessment” if the effective rate they pay on income, sales, use and local property taxes falls below a state average determined by Maine Revenue Services. The assessment, which would start for tax year 2013, would bring the taxpayer’s effective rate to the state average.
That assessment is what Berry is counting on to generate between $150 million and $250 million in revenue for state coffers during the next two years.
On the other end of the income spectrum, the bill provides for a “tax equalization credit” for residents who earn $125,000 or less but who pay an effective tax rate that’s greater than the state average. That credit, funded by the assessment on wealthier taxpayers, would take effect starting in 2016.
Berry said his proposal is partially modeled after Maine’s circuit breaker program, which offers about 200,000 low-income homeowners and renters a maximum property tax or rent refund of $1,600. Gov. Paul LePage’s proposal for a new two-year budget recommends limiting circuit breaker relief to elderly residents, saving the state $73.4 million over the next two years.
“The idea of the circuit breaker is very widely applauded by a lot of economists because it really does step back and look at the big picture,” he said. “How can we provide targeted tax reductions where they are most needed and most appropriate?”
While Maine Democrats campaigned against the 2011 income tax cuts during last year’s campaign season, they haven’t proposed repealing them now that they’re back in control of the Legislature. Instead, the party’s legislative leaders have lent their support to Berry’s tax fairness efforts. Berry’s bill is co-sponsored by Senate President Justin Alfond, House Speaker Mark Eves, Assistant House Majority Leader Jeff McCabe and the chairs of the Legislature’s Taxation Committee.
According to data from Maine Revenue Services, the state’s lowest-income residents pay a higher effective rate on state taxes — sales and income taxes — than taxpayers on the opposite end of the spectrum. In 2009, the data show, the lowest 20 percent of income earners — those earning $12,167 or less — paid 8.98 percent of their income in state taxes. The top 10 percent — who earn $108,724 or more — paid 7.51 percent of their income in state taxes.
The local property tax, however, hits low-income residents hardest, according to Maine Revenue Services. In 2009, the bottom 20 percent of income earners paid 9.68 percent of their income in property taxes, compared with 3.94 percent for the top 10 percent.
Berry said his effort to tip that scale would end up costing a penny more per dollar in taxes for those making $250,000 or more. Maine Revenue Services in January said about 4,100 tax filers in Maine have that income level.
LePage made reference to Democratic proposals to undo portions of the 2011 income tax cuts Thursday during a news conference held to announce his own proposal for a $100 million transportation bond. He said any proposal that raises taxes would make Maine less attractive to business.
“What you hear is, let’s raise the sales tax. Let’s tax the rich,” LePage said. “Unfortunately, I’ve been looking for them and they don’t come back until May. We’re not going to find the rich until they get back from Florida in May, and then they’re only here for less than six months, so I can’t get into their income. I can only get them on sales tax.”
Maine Republican Party Chairman Rich Cebra said in a news release that Berry’s bill and other tax proposals from Democrats are “about making sure they raise taxes on every Mainer they can get at in order to keep feeding out-of-control government spending.”
As lawmakers have started hearing public testimony on LePage’s new two-year state budget proposal, a number of people have suggested raising the state sales tax or lodging tax rather than eliminating revenue sharing with municipalities and reining in property tax relief programs. Rep. Charles Theriault, D-Madawaska, on Thursday introduced a bill, LD 1141, that would raise the state sales tax by 1 percentage point in years when state revenue sharing falls below the level prescribed in state law.
Legislators have also proposed a range of bills aimed at reversing some of the effect of the 2011 income tax cuts, which lowered the top tax rate to 7.95 percent from 8.5 percent and removed 70,000 low-income residents from the income tax rolls.
Those proposals include a bill sponsored by Republican Sen. Tom Saviello of Wilton that would return households earning $250,000 or more to the former top income tax rate of 8.5 percent. Another bill, sponsored by Rep. Ben Chipman, a Portland independent, would repeal the income tax cuts for those earning more than $100,000.
“I figure once somebody gets to the point of earning $100,000 or more, we just can’t afford to give them an income tax reduction, is what it comes down to,” Chipman said in an interview last month. “We just don’t have the money.”