AUGUSTA – On June 8, almost one year to the day since Gov. Baldacci signed historic tax reform into law, Mainers will decide its fate.

Opponents who failed to defeat the bill in the Legislature collected enough signatures to subject it to a “people’s veto.” As a result, Maine people have yet to receive any tax relief.

Voters will decide either to repeal the law (a “yes” vote) or allow it finally to take effect (a “no” vote).

This is the first substantive reform to Maine’s tax system in almost 40 years. It changes the income tax, sales tax and Maine Residents Property Tax and Rent Refund (“circuit breaker”) program.

It replaces Maine’s current four marginal tax rates with a single 6.5 percent rate. It applies a surcharge of 0.35 percent to annual incomes above $250,000. It replaces standard and itemized deductions primarily with a new, partially refundable household tax credit, available only to Maine residents.

The reform also makes the Maine Earned Income Tax Credit partially refundable.

Recognizing the increasing role services play in the economy, the reform measure broadens Maine’s sales tax to include installation, repair and maintenance services;
transportation and courier services; personal property services; and amusement, entertainment and recreation services.

It raises the prepared food and lodging (except campgrounds) rates from 7 percent to 8.5 percent, while increasing funding for tourism marketing and promotion.

Finally, the reform law modifies Maine’s circuit breaker program, which provides progressive tax relief to Maine residents through partial refunds for property taxes or rent.

It streamlines the circuit breaker application process, modifies income and benefit calculations, and perhaps most important, directs Main Revenue Services to include a refund application with the individual income tax form and eventually make it possible to apply online.

Collectively, these changes are virtually revenue neutral.

The tax reform will assure that Maine’s tax code is more progressive, that it preserves jobs and funding for critical government programs, such as work force development; and that it exports a substantial amount of taxes to nonresidents.

Lower-income households will generally realize the greatest percentage change in their taxes while higher income households will see the lowest.

More than 29 percent of the tax reductions will flow to Maine families making $17,497 or less.

Although reform eliminates the two lowest marginal rates, the new household tax credit will ensure that actual average taxes for most households will not increase.

In fact, even accounting for possible sales tax increases, 87.4 percent of Maine families should receive, on average, approximately $150 in tax cuts.

In addition, making the Maine Earned Income Tax Credit refundable will put money in the pockets of those who most need it and are mostly likely to spend it. The ripple effect in the local economy, especially for small businesses, will be substantial.

Currently less than half of all eligible families take advantage of the circuit breaker program. Aligning that program to correspond with the income tax filing period and including an application with the income tax form will make it simpler for more people to secure a refund.

As municipalities facing budget shortfalls consider property tax increases, the circuit breaker program is more important than ever for low- and moderate-income families.

The tax reform’s revenue neutrality assures reliable funding for health care, education, work force and economic development and other programs critically important to Maine families.

Finally, due largely to the expansion of the sales tax to include services many nonresidents use, tax reform will export almost $40 million in tax burden to nonresidents in 2011 alone. This money will stay in the state and will be spent largely to support Maine’s small businesses.

This tax reform is not perfect. But it does make the existing unstable and unpredictable system more progressive, balanced and fair to Maine families.

A successful “no” vote on June 8 will guarantee real tax relief for most Mainers.

– Special to the Press Herald
 

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