In the last days of the legislative session, when the tax reform bill LD 1495 was placed before the Senate, I rose to make this statement, “I had longer to read a greeting card than I had this 34-page bill of complex tax code change.”

I went on to plead with the majority party to give members of the Senate time to read the bill. The majority leader, Sen. Phil Bartlett countered, “members could read the summary of the bill if they wanted.” Since that day, I, along with hundreds of volunteers have launched a citizen’s veto to reject this complex law.

Here’s why:

A sales tax expansion on the elderly

According to Maine Revenue Services, about 300,000 Maine residents do not earn enough money to file an income tax return. Elderly on fixed incomes like Social Security make up the vast majority of this group. Expanding the sales tax as this plan proposes to labor on auto repair, lawn and garden, meals and lodging tax, appliance repair, etc. will impact this group significantly.

LD 1495 has a $50 credit for individuals in this group, but according to Jerome Gerard, director of Maine Revenue Services, in order to get it, one must file an income tax form and request the rebate. MRS estimates, at best, 50 percent will apply. This number seems overly optimistic. Even more disturbing, this means that supporters of LD 1495 knew at the time of the bill’s passage that nearly 150,000 elderly on a fixed income would see a significant sales tax increase with no tax relief.

MRS even factored this tax increase and new revenue in their fiscal note. MRS estimates that of the so-called $54 million in exported taxes, $5.7 million will not be claimed by Maine residents.

Add the 150,000 elderly to the 87,000 other taxpayers MRS estimates will pay higher net income and sales taxes under the plan, and first year impact of LD 1495 is that 237,000 — or nearly one-fifth of Mainers — will pay higher taxes.

The effect of delayed indexing 

The old income tax law had yearly inflation adjustments to both the tax brackets and the standard deduction based on the Consumer Price Index, which has averaged more than 2.5 percent every year since 2003.

LD 1495 eliminates indexing of the tax credits and other tax calculations until 2014. According to MRS, this will cost the average taxpayer between $18 and $50. Indexing is cumulative; by 2013 the impact will rise to $54 to $150 in higher taxes per-taxpayer.

The MRS report estimates 665,629 Maine taxpayers will save on average $81 under the bill. But, if a group of 4,456 taxpayers with income over $333,338 are removed from the equation, the average tax cut drops to $39. That leaves 661,173 taxpayers with an average tax reduction of $39 in the first year. Delaying the indexing erodes the $39 in years 2011-2013. By 2013, assuming a 2.5 percent inflation factor, the $39 average tax decrease becomes a $37 tax increase.

What’s the small business impact?

Each of the vast categories of newly taxed services represent thousands of sole proprietors and small businesses that will now have to collect sales taxes and administer the new paperwork and collection, as well as face compliance audits from MRS.

Supporters of reform point to an exemption in the law for small businesses that earns less than $5000. This sounds good, but most small businesses have no idea whether they will earn the $5000. They will be forced to make a decision in the start of the earning season, cap their earnings or collect sales taxes. What happens if they collect the sales tax and then don’t reach the cap?

According to MRS, state law requires businesses that collect, but don’t reach the cap, must either remit the collected tax to MRS or return the tax to their customers. Good luck with the latter.

Obviously, much is still to be learned about this very complicated law. What harm is done by placing this plan before Maine people on next June’s ballot and provide them with time to learn more about it or is that what supporters are afraid of?

Sen. David Trahan, R-Waldoboro, is spokesman for Still Fed up with Taxes. E-mail: [email protected]


Only subscribers are eligible to post comments. Please subscribe or to participate in the conversation. Here’s why.

Use the form below to reset your password. When you've submitted your account email, we will send an email with a reset code.