Yes on Question 1 needed to create tax reduction

Posted June 02, 2010, at 6:51 p.m.

We were surprised and troubled by the tone of the Bangor Daily News May 27 editorial “No on Question 1.” The editorial was accurate on at least one point: debate on the issue does not lend itself to sound bites. It is indeed a complex question, and only the latest proposed experiment in the state’s effort to achieve tax reform.

Unfortunately, the tax package Question 1 seeks to repeal is not the vehicle to use in starting Maine on the road to true reform. Not only does the bill enacted by the Legislature identify more than 100 new items to be taxed, it divides taxpayers and pits one against the other, i.e. those who might benefit from a small income tax decrease against those who can’t afford more sales taxes on everyday necessities. The legislative proposal has also succeeded in dividing businesses along the same lines.

Maine desperately needs a tax reduction not a divisive tax shift, and we can head in that direction only with a yes vote to repeal on Question 1 on June 8.

This “so-called” tax reform is riddled with gimmicks and unintended consequences for uninformed voters and small business. Yes on 1 has exercised what should be the foundation of democracy by educating the public on the ill effects of a law virtually no one understands.

Our coalition has several concerns with this new law and we believe the BDN would do a service to its readers by telling them why we are wrong. Here are a few:

Question 1 will further depress the job market. The new law creates a disincentive for any business or individual to come to Maine. Contained within the law is a redefinition of residency for the purpose of income. If a person moves to Maine on Jan. 2 of the tax year, they are not eligible for the resident income tax credit. If that person earned an income equivalent to a 2 percent effective rate, that individual under the new law would have to pay 6.5 percent with no household credit and pay the new sales taxes. This “welcome home tax” is a 350 percent increase in the income tax for this individual — hardly an attraction for anyone.

Question 1 punishes small businesses with increased costs. PriceWaterhouse did a 2006 study on streamlining the sale tax and found that for a business doing $1 million in sales or less, the cost of administering the sales tax was 13.5 percent of the tax collected. That cost comes directly out of a small business bottom line.

One hundred and twelve thousand low-income and elderly Mainers will pay more in taxes. From the Maine Revenue Services’ latest paper: “MRS estimates that about 112,000 eligible families (mostly single-member families) will not claim the credit and the total amount of unclaimed credit will be about $5.7 million. The credit will go unclaimed by both the elderly and non-elderly.”

One hundred and two new taxes are on the way. If this new law is not repealed, the sales tax will be expanded to 102 new items and services that 100 percent of Mainers will pay.

There are gimmicks in the law. There is a gimmick buried in the law that eliminates inflation indexing of credits and income tax rates until the year 2014. According to data supplied by Maine Revenue Services, taxpayers lose between $8 million and $12 million each year when indexing is removed. Thousands of taxpayers who get a small tax cut in the first year of reform, unfortunately, lose the tax cut in subsequent years.

MRS reports, in 2013, the tax cut is $32.3 million, the top 1 percent get a $23.3 million tax cut. It is true, there are winners and losers in each category, but this new tax code will leave behind a long trail of victims.

Obviously this law has a dark side and we should not be ridiculed for telling it.

David Trahan of Waldoboro represents District 20 in the Maine Senate. He can be reached at dptrahan@roadrunner.com. Curtis Picard is the executive director of the Maine Merchants Association. He can be reached at curtis@mainemerchants.org.

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