On June 8, Maine people will be asked to repeal the recently enacted, “so-called’ tax reform.
Supporters of the sales tax expansion have begun running ads on television that confuse voters by claiming that a yes vote would raise income taxes by 30 percent. These claims are completely false, no law has taken effect, so a yes vote does nothing but keep our current tax structure, absolutely nothing else will change. Don’t be fooled by these deceptive ads.
Below are responses to a recent request from the organization I lead, Still Fed Up with Taxes, to several questions as to how this new law could impact Maine business and taxpayers; I hope the answers help you make an informed decision on this important issue.
What’s the impact of Question 1 on:
1. Maine’s economic development and attracting investment and good paying jobs?
• Question 1 will further depress the job market. I see no positive effect on Maine’s business climate; I see the opposite for several reasons. The new tax reform 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 two percent effective rate, that individual under the new law would have to pay 6.5 percent with no credit. This welcome home tax is a 350 percent increase in the income tax, hardly an attraction for anyone. In addition, they must pay the extra sales tax.
2. Maine’s small business growth, currently the chief generator of jobs statewide?
• Question 1 punishes small businesses with increased costs. Price Waterhouse Coopers 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 sale tax was 13.5 percent of the tax collected. For a business above $1 million, the cost was 2.2 percent. Obviously, the costs are much more for a small business, with less opportunity to absorb new costs.
Ninety percent of businesses in Maine are small business; worse, every dollar collected must be remitted to the state. Someone will pay the extra cost. Either the consumer or the business – neither is acceptable in the current economic climate.
1. Mainer’s disposable income?
• Question 1 will only make it worse. Maine is one of the poorest states in the nation with one of the top tax burdens. Our per capita income is somewhere near 36 in the nation and our tax burden as a share of income is sixth in the nation. This law taxes services like auto repairs, appliance repair and repair of lawn and garden equipment.
Who do you think pays the taxes? Certainly not out-of-staters as supporters of this law imply.
Mainers also pay the lion’s share of the meals tax. On the subject of out-of-staters, who made them the bad guy; who should pay higher taxes? For every new tax dollar collected and sent to Augusta, it is one less dollar spent in our communities.
Maine Revenue Services estimates that for every dollar collected from out of staters, $2 is collected from Maine residents. This new law relies on the concept of collecting $100 million in new sales and income taxes and then redistributing the money in an elaborate credit system.
For historical purposes, this fact is important; over the last eight years, the Maine Legislature and the Governor have, by statute, adjusted taxes, fees, assessments, and credits to raise money over 340 times for a total of $1.6 billion. Do any of you believe this new money will come back without the state keeping a cut? For those who said yes, sorry, but the law is designed to do exactly that.
There is a not so clever gimmick buried in the law that eliminates inflation indexing of credits and income tax rates until the year 2014. It is worth noting, legislators restored indexing in 2002, with the intention it occurs each year. According to data supplied by Maine Revenue Services, taxpayers lose between $8 and $12 million each year when indexing is removed. Your loss is the State’s gain.
Thousands of taxpayers get a small tax cut in the first year of reform; unfortunately, they will lose the tax cut in subsequent years. MRS reports, for the year 2013 a group of less than 5000 taxpayers earning over $340,000 will get a net tax cut of $34 million, while the other 99.3 percent of Mainers who pay taxes will see their bills soar by $8 million.
It is true, there are winners and losers in each category, but this new tax code will leave behind a long trail of victims.
1. Maine’s government revenue intake?
• More money for the state means less money in your pocket. The loss of indexing of income taxes for three years will result in about $40 million in additional tax revenue in 2013, assuming a 2.5 percent inflation factor in years 2011-2013. In addition, inflation will increase the new sales tax collections by another $7 million, so the law raises about $47 million more revenue than current tax law, revenue that will stay in Augusta.
• More tax collectors on the trail. The law also keeps $1 million to hire new revenue agents, another $4 million for the tourism fund, and this little jewel. According to Maine Revenue Services estimates, mostly elderly and those on fixed incomes will pay more in sales taxes under the plan. It is true that they will be eligible for a tax credit of about $50, $70 for couples. Of course, these taxpayers will have to file an income tax return to get it. The state is betting many won’t bother.
In fact, the tax folks in Augusta have tucked away $5.7 million dollars in the budget based on the expectation that 112,000 Mainers won’t even bother to claim the credit. Obviously, the bill is not revenue neutral.
What three other factors should Maine voters weigh concerning Question 1?
1. Don’t get sick or donate to your local charity – you’ll pay more income taxes. That’s the message in the new tax shift law. The tax collectors in Augusta estimate 81,000 Maine families will pay significantly higher taxes. This unfortunate group is made up mostly of individuals with high deductions for medical expenses, interest expense, charitable donations and property taxes. These deductions are repealed and replaced with a complicated capped credit system.
2. New taxes on the way! If this new law is not repealed in June, the sales tax will be expanded to 102 new items and services. Thousands of small businesses throughout the state will have to start collecting taxes and will be subject to potential new auditing by Maine Revenue Services.
3. This is just the beginning. If this law is not repealed June 8, supporters in Augusta will claim Maine people support expanding the sales tax. There are currently $2 billion in sales tax exemptions on the books. This bill is just a foot in the door and the path to an endless supply of money to fund the state budget. We have seen many bills to expand the sales tax further, to items like, newspapers, haircuts, plumbing and carpenter services, legal services and to tax non-profits. If this law is not repealed, who can argue that their industry deserves a pass, while other industries should be taxed?
This law is just the beginning and if not repealed with a yes vote on June 8, expect more of the same.
(Sen. David Trahan, R-Waldoboro, is serving his first term in Senate District 20, which includes most of Lincoln County. He can be reached at: dptrahan@roadrunner.com.)
