To improve Maine’s tax structure, Democrats and Republicans can work together to address one of the state’s biggest problems: the property tax rate. They should put aside bills that have no political chance of passing to focus on improving what is already known to work well — partial property tax refunds through the circuit breaker program.
Property taxes represent about 44 percent of total state and local tax collections, while taxes on income and consumption, which include sales and use tax, represent about 28 percent each, according to Maine Revenue Services. Those most likely to pay more of their income in property taxes are those least able to afford it, which is why property taxes are often termed “regressive.” The bottom 20 percent of income earners paid 9.68 percent of their income in property taxes in 2009, while the top 10 percent paid 3.94 percent.
To provide tax fairness, lawmakers should look first to reducing the burden on property owners. Instead, Gov. Paul LePage’s proposed budget would not only eliminate municipal revenue sharing for two years, causing towns and cities to likely make up the difference by raising property taxes, but it also would eliminate the circuit breaker program for everyone but the elderly and veterans.
The program provides a partial refund of property taxes paid by families with incomes up to $86,600. Nearly 200,000 Maine households qualify, and people who live in subsidized housing are not eligible. For the 2011 application period, 88,864 refunds were provided, totaling $42.6 million. But even though the program delivers tax relief to those most affected by high tax increases, it has been cut in the last few years by Democrats and Republicans alike to meet state budget needs.
House Majority Leader Seth Berry, D-Bowdoinham, is trying to address the problem by establishing the same effective tax rate for low-, middle- and high-income taxpayers.
LD 1113 would have those earning $250,000 or more per year contribute 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. Then, during the following biennium, starting in 2016, people earning $125,000 or less who pay an effective tax rate that’s greater than the state average would receive a “tax equalization credit.”
The bill may be well-intentioned, and it focuses on lifting the burden of property taxes on low- and middle-income families, but it has no Republican support; all co-sponsors are currently Democrats. To override a veto from the governor, it will need two-thirds majority approval in the Legislature. Then there are questions about how the law would be carried out and how much extra, exactly, the wealthy would be required to pay.
“It would be an extremely complicated tax return for taxpayers to complete and for us to review and administer,” Mike Allen of Maine Revenue Services said.
The circuit breaker program already fits the intentions of Berry’s bill, and it can be dealt with through the budget, giving it a greater chance of passing. Finding a way to restore the program and make the application more accessible should be something both parties support, as it would grant meaningful tax relief where it’s needed most. Perhaps taking LD 1113 off the table will create an opening for Democrats to negotiate with Republicans to find the best way of paying for a revived circuit breaker program.
Berry said the circuit breaker was a model for his bill, and he is “open to other ways to make the mechanism even simpler than the circuit breaker. That is the discussion that needs to happen in committee.”
Albert DiMillo Jr., a certified public accountant and former tax director and chief tax officer of Bath Iron Works, made a good point when he testified before the Appropriations Committee last month. He said for many Maine residents, the anticipated property tax increase under LePage’s proposed budget would be significantly greater than the income tax cut passed by the previous Legislature.
Using an example of an actual homeowner in Portland who earns less than $30,000 per year, he said she will have a net tax increase of $2,642 because her $222 in income tax cuts over two years are offset by a $2,864 increase in property taxes.
The lesson is for the Legislature to look at the wider impact of changes to the tax structure and respond accordingly — by targeting tax relief to those with disproportionately high property taxes. Berry should look to the circuit breaker program to meet the goals of his bill.