“Trust me – we’re giving you tax relief”

by Rep. Jon McKane

There is a tornado of spin in the Maine media these days concerning “tax reform.”

We’ve seen this kind of hard-core propaganda before in this state. We’ve seen grand promises dependent upon leaps of faith and backed up by “trust me” when questioned by a skeptical public.

In 2003: “Dirigo Health is going to lower the cost of health insurance for all Mainers and will insure the 131,000 uninsured in five years.”

In 2005: LD 1 is going to give us “bold and historic property tax relief.”

In 2007: “School consolidation will lower the cost of education statewide and bring us tax relief.”

These initiatives have several things in common. First, they did little more than exacerbate the problems they were attempting to address. But also, they are all extremely complicated and confusing, making it difficult to track progress and results.

Now we have another major policy initiative in Maine – tax reform. Predictably, the promises are audacious and numerous. And again, as expected, the new law is an elaborate jigsaw puzzle of rules and legalese that few citizens can fully comprehend.

Here’s what we have been promised: “This tax-reform plan will bring tax relief to all Maine citizens and improve Maine’s business climate.” Sadly, this new law is not about tax relief. It is about bringing more and steadier revenues to Augusta. Steadier revenues mean that in both good times and bad, money will continue to flow into state coffers. As the system exists today, when times are bad, fewer taxes are collected. This is as it should be. When jobs are lost and times are tough, it makes sense that the state should tighten its belt.

For example, Maine imposes a sales tax on new vehicles. When times are tough, Maine people buy fewer cars; and thus there is less tax money from these sales. In order to keep the money flowing freely to Augusta in tough times, repairs on our older vehicles will now be taxed.

We are told that there will be more than $53 million in tax relief because that is the supposed amount of taxes that will be exported. Exporting taxes means getting non-residents to pay them. Hence, many activities related to tourism, such as sightseeing excursions, will now face taxation; and taxes on meals and lodging will jump from 7 percent to 8.5 percent. The problem is that Maine people enjoy those activities, too.

There is no sure way to determine the exact amount Maine government will receive with these new and increased sales taxes. That $53 million is just a wild guess.

What is a sure thing, however, is that many small Maine businesses will become tax collectors for the state, especially those businesses involved in tourism or entertainment. These businesses will need to keep an accurate accounting of all sales subject to the tax, charge the tax, pay the state on either a monthly or quarterly basis and submit reports accompanying the payments – or else face a stiff penalty.

The real beauty in this new tax plan, however, is the fiendishly deceptive changes to the income tax laws. This new law removes Maine’s current itemized deduction system and replaces it with “household credits.” The limiting of itemized deductions is the main reason that tens of thousands of Mainers will be paying more in taxes.

This tax increase actually pays for significant income tax cuts for a small group – less than 5,000 taxpayers – with incomes of more than $333,000. That’s right; the highest income earners in the state are getting large tax cuts at the expense of the middle class. That elite group at the top will see an average tax decrease of $6,238.

Under current law, most Maine families pay between 3 percent and 4 percent of their income in state income taxes. How are they helped by lowering the top marginal rate from 8.5 percent to 6.5 percent? At best, some lucky Mainers might see – if anything – a 0.5 percent to 1.5 percent decrease in the actual income tax they pay. But don’t forget, everyone will be paying the new and higher sales taxes. Maine Revenue Services predicts that at least 86,000 families will be paying more in taxes – $439 more, on average. Some Mainers will break even. But the very wealthy will hit the jackpot.

All told, these changes in our income tax laws put Maine in a class by ourselves, completely out-of-whack with federal law, even more than we were.

There are many questions about the true outcome of this new tax expansion scheme. The Maine Legislature didn’t have a clue about the consequences of this bill when we voted on it in June. We were told then, as you are being told now, “trust me.” That’s not a good sign.