Maine’s state and local taxes, including income, sales, property and estate taxes, are the subject of various proposed bills in the Legislature. Mainers would be best served if tax changes are based on informed, sound tax policy. However, politics and the lack of detail understanding of tax laws by legislators and Maine voters will likely result in a more regressive tax structure.
In 2009, the Democratic controlled Legislature passed a poorly designed “tax reform” plan that increased sales taxes and gave a large income tax cut to the top 1 percent of Mainers. I worked with the Republicans and the Green Party to overturn the law with a June 2010 people’s veto. The Republicans in November 2010 took control of the Legislature in part by pointing to the Democrats’ tax plan that favored the rich over low- and middle-class working Mainers.
In 2011, the Republican-controlled Legislature passed an estate tax change that reduces tax revenue by $30 million a year in 2013 and 2014. They also passed income tax changes beginning in 2013 that were disproportionately weighted towards the top 10 percent of Mainers. During the 2012 elections, the Democrats pointed to the Republicans’ tax changes and how they favored the rich and questioned how the $400 million in income and estate tax cuts would be paid for.
The Republicans and Gov. Paul LePage pointed to the fact that 70,000 low-income Mainers would no longer have to pay any income tax. What the Republicans didn’t say is that the average income tax saved for the bottom 20 percent of Mainers (135,000 tax families) in 2013 is estimated to be only $12 each, according to Maine Revenue Services.
The governor’s 2013-2015 biennial budget funds the $400 million income and estate tax cuts by increasing property taxes directly by cutting the circuit breaker and homestead property tax programs and indirectly by cutting revenue sharing to the cities and towns. Even if you accept the governor’s weak argument that cutting revenue sharing is not a property tax increase because the cities can cut their expenses, there is no way to justify the circuit breaker and the homestead program property tax increases.
Maine Revenue Services estimates that the bottom 60 percent of Mainers will have a total income tax cut of $30.3 million or about $75 each in 2014. Using the agency’s estimates, the governor’s tax increases from changes to the circuit breaker, homestead and the elimination of indexing on income taxes will cost the bottom 60 percent of Mainers about $35.2 million, resulting in a net increase in tax of $4.9 million. This compares to a more than $43 million estate and income tax cut to the top 1 percent of Mainers.
The Republicans claimed in 2010 that they supported tax policies that benefited the working middle class, but today they continue to fully support the unfunded income and estate tax cuts and the property tax increases. In addition, every Republican member of the taxation committee voted in favor of an additional $46 million annual income tax cut on capital gains, with about $41 million going to the top 10 percent. Another Republican bill would eliminate the income tax and replace it by doubling the regressive sales tax. The Republicans clearly favor cutting the taxes on the rich and paying for them with taxes on low- and middle-income taxpayers.
If you think the Democrats control the Legislature and that they will stop the various regressive tax changes, don’t count on it. The simple budget solution would be to eliminate all of the 2013 income and estate tax cuts and restore the circuit breaker and homestead programs. A significant portion of the revenue sharing could also be restored. Not one Democratic legislator has proposed this solution, but several Democrats are proposing increasing the sales tax. Based on the Maine Revenue Services study of 2009 taxes, the sales tax was slightly more regressive than the property tax. Accordingly, increasing the general 5 percent sales tax to lower property taxes is slightly worse for low- and moderate-income Mainers.
If the Democrats do raise the 5 percent sales tax, it will be in part because the voters and many legislators don’t understand that the sales tax is more regressive than the property tax. Other Democrats may decide that educating the public on tax policy is too difficult and risky politically, so it’s easier to pass regressive tax legislation that the voters incorrectly believe is better than the governor’s proposal. In 2014, some Democrats will blame the Republicans for the budget they voted for.
Albert A. DiMillo Jr. of South Portland is a retired corporate tax director and certified public accountant with more than 30 years of tax experience.