A Republican income tax reform bill introduced Thursday in the U.S. House of Representatives would offer big savings to Maine’s wealthiest taxpayers, particularly those who are married, but the impact on the majority of the state’s residents is less clear.

The bill drew mixed reaction from partisan groups in Maine.

Critics said that while it may offer moderate savings to some middle- and lower-income residents, important programs would need to be cut as a result of an estimated $1.5 trillion decrease in federal revenue over the next decade.

Supporters said that while the bill is a work in progress, it offers a simpler and more streamlined approach to taxation that would benefit all Mainers and the state economy.

A 76-page summary issued by the House Ways and Means Committee Majority Tax Staff reveals that the bill, known as the Tax Cuts and Jobs Act, would offer the greatest savings to married couples earning over $500,000 a year in combined income. In 2015, the most recent year for which figures are available, 2,440 couples in Maine filed jointly had adjusted gross income of at least $500,000. That group represents about 0.4 percent of the 645,700 federal tax returns filed in Maine that year.

The proposed tax code changes would increase the annual income threshold for the top marginal tax rate of 39.6 percent from the current $470,701 to $1 million for married couples filing jointly. Joint income between $260,001 and $1 million would be taxed at 35 percent under the Republican plan.

Wealthy taxpayers filing individual returns would still benefit under the proposed changes, but not by nearly as much. There were 380 Maine taxpayers earning at least $500,000 who filed individual tax returns in 2015.

The annual income threshold for the top marginal tax rate of 39.6 percent for individual filers would increase from the current $418,401 to $500,000. Individual income between $200,001 and $500,000 would be taxed at 35 percent.

FEWER BRACKETS

Another potential boon for wealthy Mainers would be the bill’s proposed elimination of the alternative minimum tax, which is designed to prevent certain taxpayers, primarily wealthier ones, from using loopholes to avoid paying their share of income tax. In 2015, about 14,500 Maine taxpayers were required to pay the alternative minimum tax.

At the other end of the income spectrum, the lowest marginal tax rate would increase from 10 percent to 12 percent under the Republican plan. Currently, Mainers are taxed at 10 percent by the federal government on their first $9,275 of taxable income. Under the proposed changes, all taxable income up to $45,000 for individuals and $90,000 for married couples would be taxed at 12 percent.

Overall, the bill would reduce the number of federal income tax brackets from the current seven down to four. The four tax rates would be 12 percent, 25 percent, 35 percent and 39.6 percent.

One proposed change that has the potential to benefit taxpayers with lower incomes is an increase in the standard deduction from the current $6,350 to $12,000 for individuals, and from $12,700 to $24,000 for couples filing jointly.

That increase would be offset, but only partially, by the proposed elimination of the personal exemption, which is currently $4,050. Still, the change would result in a net reduction of the tax burden by $1,600 for individual filers, and by $3,200 for joint filers.

The bill also would create a new “family credit” and increase the child tax credit from the current $1,000 per child to $1,600 per child.

SOME DEDUCTIONS ELIMINATED

But at the same time, it would do away with a wide range of deductions commonly claimed by individuals, families and businesses in Maine. They include deductions for medical expenses, alimony payments, moving expenses, personal casualty losses and many others.

Jacob Posik, policy analyst at the right-leaning Maine Heritage Policy Center in Augusta, said the income tax code should be simplified.

“The framework released today, while still subject to change throughout the legislative process, outlines a navigable, simplified tax code that will bring tax cuts to earners across all income brackets,” Posik said. “Early estimates show the average American family will receive a tax cut of nearly $1,200 annually. These business-friendly reforms will spur economic growth and create thousands of new opportunities for American workers.”

Sarah Austin, policy analyst at the left-leaning Maine Center for Economic Policy, said the changes would not provide any significant tax benefit to the typical Maine family. Meanwhile, she said, revenue for important programs would be sacrificed in order to fund big tax cuts for the rich. With less revenue coming from income taxes, federal spending will have to be curtailed, which could mean significant cuts in federal programs across the board.

“For low- and middle-income Mainers, the biggest impact of this plan will not be the changes to individual taxes, but the impacts on federal funding,” Austin said. “A third of Maine’s operating budget comes from federal funding for health care, food assistance, education and transportation. Other federal programs like U.S. Department of Agriculture rural development that helps families get low down-payment mortgages, and defense spending that give business to Bath Iron Works, are important parts of Maine’s economy.”

J. Craig Anderson can be contacted at 791-6390 or at:

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