2018 is getting off to a good start, following the passage of federal tax reform that I believe will help small businesses and low- and middle-class earners here in Maine. I have always believed that individuals are better stewards of their own money than bureaucrats in Washington and that economic growth occurs when people and small businesses are empowered to make financial choices with their own money.
I believe, overall, that Maine will benefit from the tax cuts, but we don’t know the entire story yet. Whenever the federal government makes significant changes to its tax code, individual states must then make their own decisions on whether to conform their own tax policies to the new federal guidelines.
This is what is known as “tax conformity,” and it will likely be one of the dominant issues in the legislative session that is now underway in Augusta.
What remains unclear is whether Maine conforming to the federal tax guidelines will provide a net gain or loss to Maine’s general fund. Lawmakers are now awaiting an analysis from the state’s Department of Administrative and Financial Services on what the impact of tax conformity would be on Maine’s finances.
Last month, the Tax Foundation released a report that concludes, “State tax systems are directly affected by federal tax changes because nearly all states conform to the federal code in some way. For example, in 36 states, taxpayers start their state income tax form by using the gross income, adjusted gross income, or taxable income figure from the federal return.”
The foundation notes that Maine is the only state that conforms to the personal exemption and not the standard deduction and, as a result, may see a larger revenue gain.
But at the same time, the report says, Maine could lose revenue if and when we adopt the new estate tax deduction level.
I eagerly await the analysis from the Department of Administrative and Financial Services on what all of this will mean for Maine, because as the chairman of the Maine Legislature’s Taxation Committee, it will help guide us on what, if any, action to take.
My top priority will be to ensure that any tax conformity legislation that passes benefits those who need it most, specifically Maine’s middle class and small businesses.
It is troubling to see the continued downward population trend in our great state. Over the past few years we have seen schools throughout Maine that were once Class A powerhouses in sports drop down to Class B and C as their student population dwindles. Our rural communities are shrinking and, in some cases, disappearing. While our population ages, our young people are leaving in large numbers, looking for better opportunities elsewhere.
In recent years, under Republican leadership, we have made enormous strides in lowering the tax burden, but reversing the trend of Mainers leaving for greener pastures will take time and a willingness to enact policies to incentivize more people to come to Maine, and keep those who are already here.
Any policy we create in Augusta, including tax conformity, needs to be aimed at growing Maine’s middle class.
(Sen. Dana Dow, R-Waldoboro, represents all of Lincoln County except Dresden, plus Washington and Windsor. He is the Senate chair of the Taxation Committee and also sits on the Insurance and Financial Services Committee.)