As a longtime advocate of tax reform and responsible state government spending, I am very proud of the accomplishments of the Maine Legislature during the past several months.
Amid a difficult recession and drastic reduction in state revenues, the state was able to balance its budget, cutting nearly $500 million in real dollars over the next two-year period. Although many of the cuts to state spending were painful and difficult to swallow, I am confident that these reductions put state government and the people of Maine in a far better position to rebound when the economy recovers.
One of the major reasons Mainers will be ready to take advantage of a healthy economy is that the Legislature enacted a revenue-neutral tax reform and relief package that will save Mainers $57 million next year, and more money when the economy strengthens. While most states responded to this economic crisis by raising taxes to fill budget holes, Maine found a way to put money back into the pockets of businesses and residents when they need it the most. The Wall Street Journal, a fiscally conservative paper, touted Maine’s tax reform as a “miracle.”
There is a lot of misinformation circulating regarding tax reform, and I’m writing to set the record straight. Halsey Frank’s recent column in The Forecaster is filled with misleading information and inaccurate claims. A small group of Republicans are trying to gather signatures to repeal the new tax relief measures that were passed by the Legislature, signed by the Governor, and lauded by The Wall Street Journal and all the Maine daily newspapers. This petition puts a stop to cutting income taxes for over 90 percent of Maine residents and businesses. I think that’s a tough sell.
The tax reform package drastically cuts the state income tax for Mainers, dropping the top income tax rate from 8.5 percent to 6.5 percent, and from 8.5 percent to 6.85 percent for those who make over $250,000. That rate reduction is coupled with a system of credits that will further reduce the tax burden on residents. The income tax relief is paid for by raising the meals and lodging tax and adding a few sales tax items, exporting $57 million in sales tax to out-of-staters. The plan is designed to reduce Maine’s tax burden, stimulate economic development throughout the state and stabilize the tax base.
While some critics, including Mr. Frank, have claimed the new law is an attempt to raise revenue, let me be clear: the state of Maine is not making any money from this proposal. Maine Revenue Services has confirmed that the tax package will lower overall taxes on almost all Mainers, and take more than $57 million in tax burden away from residents. Any claims to the contrary are inaccurate.
Small businesses are big winners under this new package. Since 88 percent of Maine businesses file taxes under the personal income tax rate, the law will cut the tax rate for those businesses in the same way.
Lower-income Mainers and seniors on Social Security will also benefit from this new law. These Mainers in need will see their overall tax burden (including both sales and income taxes) drop by over 18 percent. In addition, senior citizens who may have little or no taxable income will receive cash back, meaning seniors can file a return to receive a refundable credit. These changes in the tax law will provide money back to low income persons who currently pay little or no income tax and increase the progressiveness of the state’s tax structure.
The tax reform package is neither a Republican plan nor a Democratic plan. It is a smart plan that reforms the tax code and benefits all Mainers.