Democrats’ tax-restructuring plan is a fraud

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Recently the Sun Journal endorsed the Democrats’ tax restructuring plan that will be subject to a people’s veto in June. The editorial calls it “true reform.” It should be noted that the editors had a different opinion when newspapers were included in the sales tax expansion. They opposed it then — and should now, too.

LD1495 was jammed through the Legislature at lightning speed last June, with no hearing, no work session and no real debate. Since then, we have heard incredible claims about the benefits of tax restructuring but with little substance to back them up.

An analysis by the eminent CPA Albert DiMillo reveals that those claims are dubious at best. DiMillo (a Democrat, by the way) served as head of taxation for Raytheon Corp and Bath Iron Works. He dedicated hundreds of hours to the task of discerning the truth, based in a report from Maine Revenue Services. His analysis is devastating.

No one who favors this tax shift, including the Sun Journal’s editors, fails to include a reference to the “Maine Miracle” editorial that ran last June in the Wall Street Journal. This is essentially the biggest argument for tax “reform”: The Journal liked it — or did they?

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Curiously, what the Journal did endorse was basically the worst part of the bill. Most of the article is based on factual error and endorses a bill that doesn’t exist. The proponents of LD1495 know that the “Maine Miracle” editorial is fatally flawed, but they keep repeating the title like a mantra whenever defending the new tax expansion.

The editorial’s subtitle reads. “Finally, a state that cuts tax rates for the rich.” The author got that part right — LD1495 does cut taxes for Maine’s wealthiest citizens, especially those making more than $350,000. He neglects to mention that the tax cuts come at the expense of working families and Maine’s poor and elderly.

The rest of the Journal’s editorial simply didn’t make sense.

The author, Stephen Moore, thought that LD1495 expanded the sales tax “to services which have been exempt, like ski tickets.” Moore was poorly informed. Ski lift tickets, along with golf greens fees, were removed from the original bill in last minute dealings behind closed doors.

The WSJ’s editorial also included this absurdity: “To offset the lower rates and a larger family deduction, the plan cuts the state budget by some $300 million.”

The author obviously didn’t have a clue about Maine’s financial turbulence. The biennial budget reduction was a direct result of a huge shortfall in tax revenues. The tax reform plan had nothing to do with the budget and would not have gone into effect until Jan. 1, 2010, six months into the new budget.

Ultimately, the tax reform proposal would bring in more revenues to the state — not less.

Proponents of the plan to expand the sales tax to scores of new categories and thousands of small businesses like to bring up a report on Maine’s new law by the Tax Foundation. The report lists both positive and negative effects of the bill.

Not surprisingly, proponents don’t mention the negatives — that tax reform will make Maine less competitive with neighboring states; that most of the new taxes are not exported; that many Mainers will continue to see an effective marginal income tax rate of 8 percent; and that the bill is not revenue neutral.

Tax “reformers” in the majority party are also very quiet about the deductions that have been capped for mortgage interest, property taxes, charitable contributions and medical expenses. Standard and personal exemptions are capped, too.

Those are dramatic changes to the state’s income tax system and they put the state completely out of sync with federal law.

The limiting of itemized deductions is the reason that MRS calculates that 86,000 Maine taxpayers will experience an average net tax increase of $439.

LD1495 also suspends inflation indexing until 2014. Average income Mainers getting a $39 income tax cut this year would see their income taxes going up a few years later. Even worse, the poorest in Maine who don’t file an income tax form — around 300,000 — will get no “credit.” They will, however, have to pay all of the new sales taxes.

We need a serious debate about this dangerous bill. When voters go to the polls in June, they deserve to know the truth. Such leading newspapers as the Sun Journal can provide a valuable service by studying the facts and honestly reporting them.

State Rep. Jonathan McKane, R-Newcastle, serves on the Marine Resources Committee.

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