For most Mainers, trying to understand the complexities of tax law can be as appealing as watching grass grow. I think it is safe to say the vast majority of people and business owners are busy working, raising families and trying to survive in one of the harshest business climates in the nation.
In reality, most Mainers rely and trust their elected officials and press for information. Unfortunately, this information is often tainted by political spin. I have decided, as leader of the effort to repeal the sales tax expansion to lower the income tax, to lay out the reasons to repeal this law without any “spin” and let you decide if this plan is good for Maine.
Senior citizens and folks on fixed incomes will pay more sales taxes. According to Maine Revenue Services estimates, 300,000 Mainers, mostly elderly and 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 in the budget based on the expectation that thousands of Mainers won’t even bother to claim the credit.
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 These deductions are repealed and replaced with a complicated capped credit system.
Bracket creep is back. 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 that Legislators eliminated this gimmick in 2002. 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 who get a small tax cut in the first year of reform, unfortunately, will lose the tax cut in subsequent years. MRS reports, for the year 2013, a group of less than 5,000 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. While it is true that each category has winners and losers, this is a seismic shift of tax burden to benefit a tiny group of Maine’s super rich.
102 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. For example, automobile repair, appliance and lawn and garden equipment repair. 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.
Tax relief will be complicated, confusing costly and subject to the whims of future lawmakers. The new law relies on a very complicated credit system unlike any system in the nation to collect the new sales tax and redistribute it in targeted income tax cuts for the wealthy. Such a system is extremely vulnerable to adjustments in times of budget crisis. In the recent past, the Legislature has routinely adjusted fees, credits, assessments and other revenue-generating programs.
According to the Legislature’s non-partisan Office of Fiscal and Program Review, for the first seven years of Gov. John Baldacci’s term in office, the Legislature and the governor have adjusted these categories over 310 times and the estimated increases in tax burden total over $1.5 billion. These new taxes and credits in the tax reform law will become part of this vast menu of potential new revenue. Without intimate knowledge of the tax code and credit system, virtually no one will know or understand when or if the Legislature reduces the benefits of the tax credits.
The law is not revenue neutral. 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.
So, let’s review the facts one more time regarding the alleged tax reform bill:
The state will collect more in taxes; more things will be taxed; the tax code will become more complicated and more confusing; and the new tax law will create a whole new menu of taxing opportunities for future Legislatures.
The facts are clear: This new law is not tax reform.
David Trahan (R-Waldoboro) is currently serving his first term as senator from Maine State Senate District 20.