Tax reform: just the facts

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.

Income taxes

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.

Sales tax

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.

Other taxes

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.

Business

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.

Examples

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.

Single:

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.

rmetzler@sunjournal.com

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Comments

Bob Stone's picture

What the reporter left out

1. Newspapers are not included in the list of new taxable items.

2. There are actually 102 new items added to the taxable item list.

3. 4,500 Mainers, earning over $350,000, will get $42 million of the $60 million in tax relief.

4. The other 700,000 filers will share about $18 million in relief.

5. 300,000 Mainers don't file, and they will not get the credit, and they will pay the new sales and meal taxes.

6. Lower income Mainers, now paying 2 and 4% rates, will pay 6% rates.

7, The impacts after years one and two will be far more expensive for Mainers.

This is one of the most poorly written and poorly researched stories I've ever read. Unless, of course, the paper had an agenda.

Mark Turek's picture

'YES on 1' has lots of genuine support

If you're not sure who to trust on next week's Question #1, please note that the ‘Vote YES! on #1’ to Reject New Taxes Coalition includes:
Maine Merchants Association, Maine Restaurant Association, Maine Innkeepers Association, Maine Tourism Association, National Federation of Independent Business, Maine Grocers Association, Maine Professional Guides Association, Maine Campground Owners Association, New England Car Wash Association, Maine Auto Service Professionals, Bar Harbor Chamber of Commerce, Old Orchard Beach Chamber of Commerce, Maine Automobile Dealers Association, Dry Cleaning and Laundry Institute, New England Fabricare Association, Coin Laundry Association, Union Chamber of Commerce, Caribou Chamber of Commerce, ABC of Maine, Maine Motor Transport Association, Maine Association of Realtors, Maine Snowmobile Association, York Region Chamber of Commerce. Source: http://voteyestoreject.com

Kevin Hanscombe's picture

Direct tax vs indirect tax

Though the end result will be MORE mainers will be paying MORE in taxes because of this tax shift it is probably the right thing for Maine... There is the tourism factor where tourist will pick up some of this but its hard to see just how much that will be..

At the end of the day it will improve Maine's poor tax image and make us look a little better. And I always support indirect taxes over direct taxes.. But it will not solve our bigger problems.. I will still be able to go to BJ's in Portsmith and marvel at how much LESS everything costs to buy and a sales tax doesn't explain everything!.. $1.45 less for a gallon of MILK?? come on??

And I think there still is a bigger issue here flying under the radar! ( I do not have current stats but this was 2007 and I can only imagine Maine has gotten worse)

In 2007 Maine collected $5,045 on a per capita basis in taxes... that is $5045 for every man women and child! ONLY 7 STATES AND DC COLLECTED MORE FROM THEIR CITIZENS
1. DC $7,873///2.CT $6,756///3.NJ $5,991///4.MA $5,419///5. VT $5,387///
6. MD $5,341///7. RI $5291///

 's picture

Maybe they asked REAL accountants

not wanna bees who graduated from Husson. You've repeated the same refuted lies over and over, I think you acutually believe them.

 's picture

And where i graduated has WHAT

to do with your repeating lies over and over. Nice deflection from the true argument, you are completely untruthful when discussing most issues, you constantly tell us what you WANT to be true, instead of the actual truth.

 's picture

again with the non sequitur

what possible relevance is my education to the topic at hand. Are you suggesting that only pseudo intellectuals like yourself are qualified to have opinions? The question is why do you continue to make statements that have been refuted over and over. In simple Husson-speak, why do you keep spouting lies?

Michael Schaedler's picture

Please vote yes

What the tax reform does is transfer the tax cost from the middle and upper income people to the low income and welfare recipients. The low and no income folks can't afford new taxes on the goods that are used everyday and need to be bought to survive. Please vote yes to repeal the tax reform law so this doesn't happen, and remember who it was that was trying to push this deception upon us, at the next vote.

Mark Wrenn's picture

oh, okay...

30% of Mainers pay NO tax? That's a good one! No sales tax, no payroll taxes, no property taxes......

Scott Pare's picture

Sticker shock???

Sticker shock is a bit of an exaggeration isn't it Mainah? Lets say you need to get your car repaired and the bill is $1,000. Now, take into consideration the fact that you already are charged tax on any parts, oil & filters, or tires that are required on your repair, the new tax is only on the Labor charge of the bill. So on that $1,000 repair bill, maybe $500 of that is labor and your new tax would be $25. Adding $25 to your repair bill is hardly "Sticker Shock" material. Nice try trying to scare uneducated voters though...

 's picture

the only argument the YES on 1 campaign has

is exaggeration, scare tactics and lies. Because when rational arguments are made, NO is the only rational choice.

Jeremy Keith Hammond's picture

VOTE YES

Speaking as a progressive, but opposed to the Augusta Democrats - this tax reform IS a bad idea. Sales taxes are a larger burden to the poor than they are to more affluent citizens. You can control what you spend your money on, but that's not really fair to exclude the poor from consuming the newly taxed goods and services. (The new reform also spits in their face when it neglects to tax luxuries like skiing and golf.) Whether they buy them or not - it reduces their collective spending power and fewer goods and services are purchased overall which is bad for the economy.

It also doesn't effectively tax tourists as they suggest it does. How many tourists come to Maine to go to a cinema? How many are getting car repairs? Meanwhile popular tourist attractions (again, Skiing and Golf) are not taxed. The Maine Restaurant Association (another small business coalition AGAINST the reforms and FOR the repeal) says that 86% of restaurant revenue in Maine is paid for by Mainers - not tourists. Taxing them is bad - either people stop going (and the restaurants and subsequently their employees are hurt) or people continue to go and their purchasing power is reduced and fewer goods and services are bought.

Even if it DID tax tourists - even that is bad policy. The tourist industry is something we're trying to nourish. Increasing taxes of it is not going to attract touristy businesses - and while it may not discourage tourists from coming, it will reduce their purchasing power.

The income tax changes are at best just a huge cut for the wealthy and at worse an actual increase for people in lower brackets. The credit, which so many politicians are proud of requires many people - who wouldn't have had to file taxes at all - to start filing to get the credit. The costs (time and money) of filing (especially for someone who hasn't had to do it before) will be seen by many as not worth it. Not only that - but it's essentially a rebate which requires people to have to pay the tax up front (through sales) and get the money back (which is barely worth it.) As if their time wasn't limited enough trying to juggle children and trying to remain competitive in a poor jobs market.

The Chamber of Commerce and Wall Street are hailing this as "the miracle in Maine." But both of those institutions represent Big Business, not the average business in Maine or the average Mainer. Just like the Corporate Big Business types that are responsible for bailouts and oil spills. That should be a clue as to who this reform REALLY benefits.

So yea, vote YES if you want to keep taxes the way they are now (despite their imperfections) and put the legislature back to work on taxes; or vote no if you want to provide a huge tax cut for the wealthy and make up for the lost revenue by increasing consumption taxes which hurt the poor.

Douglas Mac antSaior's picture

My grandfather used to say,

My grandfather used to say, "You can't make ice cream out of horse s***." So, no matter how you stir these new taxes around or how many chocolate chips you add... it's still horse s***. Vote Yes!

Mark Turek's picture

Don't fall for the lies

Please Vote ‘YES! on 1’ to support the Peoples’ Veto of 100+ New/Higher Taxes from LD 1495... and PLEASE spread the word to help defeat the lies.

The list of 100+ New/Higher Maine Taxes is posted at http://voteyestoreject.com/wp-content/uploads/2010/05/Vote-YES-to-Reject...

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