SOUTH PORTLAND — In its recent editorial on Eliot Cutler’s tax plan (“Our View: Cutler’s tax plan starts right debate,” April 17), the Portland Press Herald once again showed how little it understands about Maine’s tax structure and good tax policy.
Over the past several years, whenever a poorly designed tax plan is introduced, it is called “tax reform” and always claims to “modernize” Maine’s tax structure.
Modernizing Maine’s tax structure or “tax reform” has really meant increasing total taxes, and shifting taxes from the rich to the low- and moderate-income taxpayers, making Maine’s tax structure even more regressive by requiring these taxpayers to pay an even higher percentage of their income in taxes.
Eliot Cutler’s plan will both raise taxes and make Maine’s tax structure even less proportional. In addition, like most previous tax plans, the math doesn’t add up, and the plan ignores the interaction of the federal income tax on the net total federal and state taxes paid by Mainers.
Eliot Cutler’s plan is based on several false assumptions about Maine’s tax structure.
• First, he claims that Maine’s property tax is the most regressive tax and that his plan to cut property taxes by increasing sales tax will improve tax fairness for low- and middle-income taxpayers. A 2011 Maine Revenue Services study illustrated that sales tax is slightly more regressive than the property tax.
• In addition, as noted in the study, because sales tax is not deductible on individual federal income tax returns, but property tax is deductible, the net total federal and state tax paid by Mainers will increase even if the plan were to balance the tax cuts with tax increases. Accordingly, Cutler’s plan to cut property taxes by increasing sales tax is irrational.
Cutler has two alternative plans to raise the sales tax, and in both, his bad math claims that his plan will increase sales tax by $180 million a year. His math is based on increases over a 5 percent Maine sales tax.
Of course, Maine’s current sales tax rate is 5.5 percent, and while there is a plan to return the rate to 5 percent next year, the Legislature has no plan for how it will cut the rate. Accordingly, the real revenue increase from the current level is only $90 million.
Cutler’s plan also counts $20 million from sales tax on online sales, based on the state joining the streamlined sales tax compact, which gives states the authority to have out-of-state Internet merchants collect sales and use taxes. The fact is this compact will create no new revenue, and Maine already has a use tax law that requires all online purchases to be taxed, but is not strongly enforced.
If Cutler really were concerned about low- and moderate-income taxpayers, then his choice of the way to reduce property taxes is just wrong. The major part of his plan to reduce property taxes is to increase the homestead exemption for Maine residents from $10,000 to $50,000. This means that all residents, including millionaires, who own a home will receive the benefit.
If he really were concerned about the Mainers who currently spend so much of their income on property taxes, then he should be promoting the return of the property tax circuit-breaker program, which the Legislature eliminated in 2013.
In its 2011 study, Maine Revenue Services estimated that 53 percent of the homestead exemption benefit was received by the bottom 70 percent (by income) of Mainers. In contrast, 88 percent of the circuit-breaker refunds went to this same 70 percent.
Under the old circuit-breaker rules, the top 10 percent of Mainers did not qualify for the program. Accordingly, if Cutler is really concerned with low- and moderate-income taxpayers, he would have proposed an expanded circuit-breaker program.
While it was not in this tax plan release, in Cutler’s “A State of Opportunity,” under the heading “Fair and Equitable Taxes,” he states, in part, “Maine’s estate tax is badly out of conformity with federal estate tax.”
Effective in 2013, Maine’s estate tax exemption (the amount of assets not taxed) was increased from $1 million to $2 million. The 2013 changes to the estate tax reduced Maine estate tax revenue by $30 million.
The 2014 federal estate tax exemption is $5.34 million, so conforming with the federal law would bring Maine’s estate tax exemption up to $5.34 million. Does Eliot Cutler believe this change will help low- and moderate-income Mainers? Maybe we can increase the sales tax more to pay for his estate tax cut.
— Special to the Press Herald