LEWISTON — Taxes are complicated. That's why many people find it's worthwhile to pay people to figure them out. And changes to the tax code are difficult to understand. But thanks to a successful people's veto effort, voters on June 8 will have the opportunity to weigh in on the complex tax reform law passed last year by state lawmakers.
The measure is revenue neutral, which means there would be no additional money going to state coffers, only money collected from different places.
The new legislation is expected to result in 88 percent of Mainers seeing a reduction in their overall tax burden, according to Maine Revenue Services, a nonpartisan state agency. The agency expects the new tax code to result in an additional $55 million of Maine's overall tax burden being paid by tourists, a number that would increase as the economy rebounds.
The question before voters is whether they approve of the trade-offs lawmakers made to reduce the state income tax burden and stabilize state revenue collections. A 'yes' vote on Question 1 would repeal the new law and keep things as they are; a 'no' vote would enact the new measure.
The primary goal of the tax code changes was to lower the state's income tax. Currently, individual Mainers earning more than about $20,000 a year are paying 8.5 percent in Maine income tax. The new law lowers Maine's top income tax rate to 6.5 percent for most, though individuals earning more than $250,000 a year would pay 6.85 percent.
Many Mainers would pay less than the new 6.5 percent rate because of a new tax credit system that favors low- and middle-income taxpayers.
The new standard credit for individuals would be $700. The new law eliminates state itemized deductions, but for the 25 percent of Mainers who itemize, the new credit would be $400 for individuals, plus 5.5 percent of all of their federal itemized deductions. The itemized credit would max out at $1,150. In either case, for those who itemize and those who don't, there would be a $250 credit for each added dependent. The credits would be given in addition to the lower income tax rate.
Mainers who earn too little to pay income tax would have to file returns with the state to receive their rebates — $50 for individuals and $70 for married filers. Individuals 65 and older would receive $60 rebates and couples would get $120.
According to Maine Revenue Services, 95.6 percent of Maine income tax payers would pay less under the new law.
To pay for the loss in income tax revenue, the new tax package calls for an expansion of the state's 5 percent sales tax. National groups identify about 180 sales tax categories. Right now, Maine taxes 25 of them. That number would double under the new law. The average number of categories taxed by all 50 states and the District of Columbia is 56.
The state would add sales tax to items and activities considered amusements, such as concert, movie and theater tickets and admission to amusement parks, carnivals, circuses, festivals, non-agricultural fairs, petting zoos, race tracks and sporting stadiums. Entertainment services such as bands, clowns, comedians, disc jockeys, jugglers and ventriloquists would also be taxed.
Daily rentals of bowling shoes, golf clubs, gowns, party equipment, ski equipment, small tools, moving trucks and tuxedos would be taxed.
The sales tax would also be added to several installation, repair and maintenance services, including cars, furniture, guns, jewelry, musical instruments, televisions, lawn mowers and shoes; and to personal property services, such as boat moorings, car washes, dry cleaning, house cleaning, interior decorating, monogramming and storage and moving services.
Pet services, such as boarding, grooming and training, would also be taxed at the 5 percent rate.
Maine would also increase its 7 percent meals and lodging tax to 8.5 percent to help pay for the reduced income tax.
The tax applied to car rentals would increase from 10 percent to 12.5 percent.
To become more uniform with other states, candy would be subjected to the 8.5 percent meals tax, rather than the 5 percent sales tax.
A $1 per passenger fee would be charged on taxicabs and limousine rides beginning or ending at commercial airports.
Supporters argue that the new law would help small businesses because most file their business taxes as personal income tax and would benefit from the overall reduction in income tax. Opponents say small business owners who would have to begin charging sales tax would lose under the new law.
The National Federation of Independent Businesses opposes the new law. But the Maine State Chamber of Commerce and the state's three largest regional chambers — Androscoggin County, Bangor regional and greater Portland — endorsed it.
Most people want to know whether they would pay more or less in taxes, overall, under the new law. Maine Revenue Services has a tax calculator for people interested in specifics: http://www.maine.gov/REVENUE/incomeestate/1040/taxreformindividual.htm.
But here are a few general examples of how the new code would treat some average filers, according to information from Maine Revenue Services.
Elderly couple on a fixed income:
If an elderly couple earns a total of $27,500, files jointly and takes the standard credit, their income taxes under the current law would be $207. Under the new law, they would receive $33 back, but according to Maine Revenue Services estimates they would pay about $91 in new taxes. Overall, they would save $149. The reduction in income tax is greater than the amount of new taxes they would likely pay.
Married couple with two dependent children:
If a married couple with two dependent children earns a total of $80,000, files jointly and takes the standard credit, their income taxes under the current law would be $3,690. Under the new law, they would pay $3,375, but pay an additional $137 in new taxes. Overall, they would save $178.
If an individual earns $50,000 and takes the standard credit, their income taxes under the current law would be $2,857. Under the new law, they would pay $2,637, but pay $92 in new taxes. Overall, they would save $128.
By and large, the people who would pay more under the new system are filers that have a high percentage of itemized deductions relative to their income level — people who have high health care costs, for example.