December 19, 2018
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Tax conformity not a top priority for Maine

Troy R. Bennett | BDN
Troy R. Bennett | BDN
Gov. Paul LePage delivers his final State of the State address before a joint session of the Maine Legislature in Augusta on Feb. 13.

Long before they were passed into law, many economists and analysts warned that Republican tax changes would benefit corporations and the wealthy with only fleeting benefits for working Americans.

Late last year, numerous analyses of the proposed tax plans found that the plans’ benefits would flow mostly to rich Americans and large corporations and that many average-income Americans will pay higher taxes in a decade. One reason is that while corporate tax cuts are permanent in the legislation, tax changes for individuals and families will expire.

In addition, the plans were predicted to grow the deficit by about $1.5 trillion over the next 10 years, which will require cuts in government spending for programs like Medicare.

Just a few months after the Republican tax cut package was signed into law by President Donald Trump, these predictions are already turning out to be true.

The tax cuts were sold on the promise of corporations raising wages and investing in American factories. Some businesses announced bonuses and pay increases for their workers after the legislation was passed, which is good news for workers. But corporations were much more more likely to use their windfall to buy back stock, a maneuver to increase stock prices, which further enriches executives and investors. The value of these buybacks — more than $170 billion by mid-February — is 28 times greater than employee bonuses and more than 80 percent of stocks are held by the wealthiest 10 percent of Americans.

Because of the tax cuts and increases in federal spending under the Trump administration, the federal deficit is expected to top $1 trillion next year, according to the Committee for a Responsible Federal Budget. If the US stays on the same path, the deficit will exceed the size of our economy within a decade, the group warned.

Given this, there is no reason for Maine to conform with the federal tax changes. In fact, Gov. Paul LePage acknowledges this and has warned Maine legislators not to fully adopt the federal changes. Doing so, he warned, in his February State of the State address, would lead to a tax increase for Mainers. Instead, he has proposed a mix of conformity and more tax cuts, with the biggest benefits going to rich Mainers and businesses.

This is unnecessary — and costly.

LePage’s proposal includes conformity with many federal tax law changes for corporations, including elimination of the corporate alternative minimum tax, quicker write-offs of business expenses and a reduction in the state corporate income tax.

On the individual side, the federal tax changes eliminated the personal exemption. If Maine adopted this change, it would result in a $250 million tax increase for Maine households, according to Maine Revenue Services.

To avoid this, LePage has proposed a new zero tax bracket that would shield the first $4,150 of an individual’s earnings and $8,300 for a married couple. Unlike the personal exemption, this bracket would not phase out at higher incomes, thereby lowering the tax liability of well-off households.

LePage’s plan would also add a non-refundable child and dependent tax credit, which again would not phase out at high incomes.

LePage’s plan would double Maine’s estate tax exemption, which benefits only the state’s richest families, matching the federal package.

The changes the governor proposes would reduce Maine revenues by more than $88 million over the next two years.

LePage has long focused on reducing state services, especially for the poor, children and those with substance abuse disorder. Maine’s child protective system is woefully broken, at least one Mainer dies daily, on average, from a drug overdose and the state has a legal obligation to expand health insurance.

Addressing these issues must remain a higher priority than further reducing taxes.

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