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Income tax cuts should be delayed to balance budget, Democrats say

Posted May 29, 2013, at 10:42 a.m.
Last modified May 29, 2013, at 2:23 p.m.

AUGUSTA, Maine — Democratic legislative leaders Wednesday said the income tax cuts approved two years ago by a Republican-controlled Legislature should be delayed for two years in order to balance the new two-year state budget that takes effect July 1.

House Speaker Mark Eves, D-North Berwick, and Senate President Justin Alfond, D-Portland, said the move would prevent what they called a massive tax burden shift to property taxpayers through Republican Gov. Paul LePage’s budget proposal, which eliminates revenue sharing with towns and cities and scales back two major property tax relief programs.

Democrats have strongly opposed LePage’s budget since it was introduced in January, but party leaders hadn’t until Wednesday laid out an alternative budget-balancing plan. The Legislature faces a June 19 adjournment date, and the Legislature’s budget-writing Appropriations Committee is under pressure to send a budget deal to the full Legislature in the coming weeks.

“The governor has passed the buck to our cities and towns and our citizens,” Eves said during a State House news conference outside LePage’s office. “Can we simply agree that right now we cannot afford a tax break that was not paid for? When the property tax bill comes due, we will all pay the price.”

Republican legislators cast the Democratic proposal as a $400 million tax hike, and they pointed out that many Democrats voted for the tax cuts as part of the two-year state budget approved two years ago.

“We can either concentrate on how we’re going to right-size government or we can concentrate on how we’re going to raise taxes, and you heard what the Democrats’ solution was today. It’s to raise taxes,” said Assistant Senate Minority Leader Roger Katz, R-Augusta.

LePage spokeswoman Adrienne Bennett said Democrats have yet to put forward an alternative to the governor’s budget. LePage has opposed raising state-level taxes, and a television placed in a window in his office Wednesday flashed a message, “No New Taxes.”

“When the federal government has raised taxes and we have the tax cuts that are on the books that help alleviate that burden, now isn’t the time to repeal something that’s helping thousands and thousands of Mainers,” Bennett said.

Eves and Alfond said Wednesday that delaying implementation of the income and estate tax cuts by two years was a responsible option for balancing the budget. Otherwise, they said, Maine residents will feel a tax increase if LePage’s budget passes as proposed.

“Forcing a property tax increase is not a balanced budget,” Alfond said.

LePage has said towns and cities don’t have to raise taxes if their state revenue streams are reduced. It’s a “local choice,” he said in a January radio message.

In proposing to delay the income and estate tax cuts, Democratic leaders are taking a cue from their colleagues on the Legislature’s Taxation Committee. In a letter sent to the budget-writing appropriations panel last week, the Taxation Committee’s Democratic majority recommended the tax cut delay.

Passed in 2011, the tax cut took effect at the start of 2013, and Eves and Alfond said the cut was not paid for. Some Democrats voted for it as part of the budget, Alfond said, with the understanding that state tax collections would recover as the economy rebounded.

“We wish the economy was better,” Alfond said. “We wish these tax cuts were paid for.”

The tax cuts lowered the top individual income tax rate to 7.95 percent from 8.5 percent and eliminated state income taxes for 70,000 low-income earners. They also doubled the estate tax exemption. Starting this year, the first $2 million of a deceased person’s estate is exempt from the tax, double the size of the previous $1 million exemption.

Those reductions account for about $400 million of the $880 million gap LePage’s proposed budget is meant to fill, according to a September 2012 analysis by the Bureau of the Budget.

Since the tax cuts took effect at the start of the year, employers have started withholding wages at the new tax rates and Maine Revenue Services has begun to implement the changes.

A delay in the tax cuts could help pay for some of the changes Democrats have proposed to LePage’s budget. At the committee level, Democrats have opposed the elimination of revenue sharing and cuts to property tax relief programs. They’ve also opposed some proposed cuts to Department of Health and Human Services programs and recommended the state provide $30 million more in public school funding.

With LePage and Republican leaders opposing a delay in implementing the tax cuts, it’s unclear where they can find common ground with Democrats to forge a budget deal.

“We do need to find some common ground,” said Bennett, LePage’s spokeswoman. “We knew full well that this budget that the governor put forward was not going to come back the same.”

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