AUGUSTA – As this legislative session moves into the home stretch, Maine residents can look forward to one of the best things to come out of Augusta in a long time — genuine tax relief.

Thousands of Maine families, farms and small businesses will see their taxes decline beginning with the 2012 tax year.

This is the kind of economic shot in the arm we need to fuel business activity and spark job creation. We’re not talking about a one-time deal, either. The reforms make permanent structural changes to the state’s tax system.

Last month, the Taxation Committee finished work on a package for inclusion in the state budget for fiscal years 2012 and 2013. The plan lowers Maine income taxes across the board and makes more than a dozen other changes. Income tax cuts would average $243 in 2012 and $343 in 2013.

Among the many tax changes is the elimination of the state’s 7 percent tax on meals served at retirement homes, which has been an expensive irritant for seniors on fixed incomes.

Moreover, the “marriage penalty” is slated to disappear, along with the much-despised Alternative Minimum Tax.

To help the business community, we adopted Section 179 expensing, which allows small businesses to accelerate depreciation on investments. Additionally, to help our fishing industry, we provided a credit for investment in fishery infrastructure and eliminated the sales tax on fuel used by commercial fishing vessels in the Gulf of Maine.

However, the major reductions come on the income tax, which would fall by $45 million in 2012 and $134 million in 2013. In 2015, income taxes would drop by $183 million.

It must be emphasized this is not a tax cut for “the rich,” as opponents have claimed. Indeed, some 70,000 low-income filers will have zero income tax liability starting in 2012, because the first $10,350 of income for any Maine resident will be tax-exempt.

The tax reduction initiative is now in the Appropriations and Financial Affairs Committee, which is crafting the state budget. The Appropriations panel could change the new tax structure if necessary to balance the budget and assemble a financial blueprint that can pass both the House and Senate by a two-thirds majority.

Assuming the tax plan remains largely intact, it will reduce the number of tax brackets from four to two — or three, counting the 0 percent bracket.

For the 2012 tax year, the rates would be 6.5 percent and 8.5 percent. In 2013, the rates would be set at 6.5 percent and 7.95 percent. Thanks to higher exemption and deduction amounts, however, those rates would kick in at much higher income levels.

For example, this plan brings the standard deduction up to the federal level. Under existing law, the 2012 Maine standard deduction for married couples filing jointly is projected to be $9,800. Our plan increases that to $15,000.

An estimated 134,000 families will benefit from this adjustment. (Standard deductions for single and head of household filers already conform to the federal amounts.)

Additionally, our proposal increases Maine’s personal exemption to $3,750, up from $2,850, where it has stood since 2000. An analysis by Maine Revenue Services projects that more than 420,000 families will benefit from this change.

The combined effect of these changes yields significant savings. In 2013, for example, a family of four using the standard deduction would owe no Maine income tax if their adjusted gross income is below $35,750, compared to a no-tax threshold of $21,400 in the current law. A family of four with an adjusted gross income of $60,000 would owe $1,576 instead of $1,928 under the existing system.

Overall, this is a very positive compact for Maine residents. It provides the framework to move to a flat income tax over time, while allowing Mainers to keep more of the money they earn.

The $203 million tax reduction plan is part of a multipronged strategy to get Maine’s economy moving again. The other two components — regulatory reform and health insurance reform — are equally vital.

Taken together, these policy changes promise to make significant improvements to Maine’s economy in areas such as business development, job creation and overall prosperity.

– Special to the Press Herald