Tuesday, December 10, 2013
Last week, one Independent, five Democrat and five Republican state legislators proposed a sweeping overhaul of Maine tax laws. I join other Mainers in appreciating the bipartisan effort by the so-called “Gang of 11” to reform the State’s smothering web of taxes.
I was particularly pleased to read on page 3 of the now public document entitled “An Act to Encourage Maine Residence (Discussion Draft)” dated March 26, authored by the group of 11 legislators, that stated…
“Income taxes are among the factors that individuals and businesses consider in making location decisions. These reforms would make locating in Maine more attractive for individuals creating or bringing jobs to Maine, for retirees choosing their formal residence for tax-purposes, and for small businesses, thereby laying the foundation for a more prosperous economic future.”
For many years, fiscal conservatives including myself have presented compelling evidence that high taxes, complicated regulations, and expensive energy and health insurance have been driving away businesses, jobs, and senior citizens from Maine. Even so, the annual chorus of naysayers surfaces when the clear benefits of lower taxes are discussed.
Finally, the bipartisan Gang of 11 have put this issue to rest -- taxes matter. Maine’s safe communities and pristine natural environment are not enough to attract business investment and jobs. Companies (and jobs they create) invest in places where they have the best chance to succeed. That means states (and countries) with lower costs -- all costs, including taxes paid by business owners AND employees.
The proposed tax overhaul includes a number of moving parts. A major piece is cutting Maine’s personal income tax rate to a flat 4% from the current highest rate of 7.95%. The single 4% rate kicks in for individuals earning more than $50,000 per year, and for joint tax return filers (for example, married couples) earning over $100,000 annually.
The lower personal income tax rate would allow Maine families to keep more of their hard-earned money and spend it as they see fit, growing our small businesses with their purchases. The lower rate would also permit our small businesses to retain more profit that can be re-invested to expand their operations and hire more workers. Most small businesses and their owners pay the same income tax rate as individuals.
Unfortunately, these job-creating income tax cuts are more than offset by the Gang of 11’s dramatic expansion of sales taxes in Maine. Although final figures are not yet available, the net result is estimated to be a $150 million tax increase.
The Gang of 11 claims that its plan levies most of the $700 million of additional taxes on those visiting and vacationing in Maine. I question the logic of further taxing Maine’s largest industry, tourism, which directly employs approximately 175,000 fellow citizens. Last week, the Gang of 11 agreed that taxing something more produces less of it. Higher income taxes result in fewer jobs. Higher sales taxes would lead to fewer tourists which would result in fewer tourism jobs.
Maine families also pay sales taxes. With the new proposed plan, essentially every product and service one buys would be taxed, and at 6% instead of 5%. Groceries, heating oil, haircuts, auto repairs, bottled water, mini-golf, movies, and funerals would be taxed -- almost everything one can imagine. The only exceptions are education and health care related goods and services.
The tax on meals would rise to 8% from 7%. Lodging to 10% from 7%. Beer and wine taxes would double. The Maine Restaurant Association reports that 70% of prepared meals and 36% of lodging taxes are paid by Maine residents traveling and vacationing in-state.
The grocery budget for a family of four with two growing teenagers can quickly reach $300 per week. That’s $15,600 per year for groceries. Now, apply the new proposed 6% sales tax, and the family is sending another $936 to Augusta – each year. And, that’s just the tax on groceries! Add the higher 6% sales tax on just about everything purchased, including items and services previously not taxed, and the financial strain becomes obvious.
The new tax proposal aims to return up to $1,000 per year in sales taxes paid by Maine’s lowest wage earners. Our poorest families would be required to file paperwork with the state for a partial refund of the sales taxes they already paid during the year.
What concerns me the most about this well-intended tax overhaul is that it doesn’t fix the long-term problem -- Maine state government’s continued overspending. The two-year budget from mid-2013 through mid-2015 is projected to have an $800 million shortfall. Instead of eliminating that shortfall with responsible spending reductions, the Gang of 11 proposes a staggering $700 million of additional taxes presumably to help balance the budget. A better plan to attract business investment and jobs, while not penalizing Maine residents, is to balance the budget with spending reductions rather than tax increases.
Now is the time to weigh in with your state legislators about this sweeping new tax proposal that impacts all Mainers.
Bruce Poliquin is the former Maine State Treasurer and a 2012 Republican primary candidate for the United States Senate. He has 35 years of experience owning and managing businesses. Bruce is a proud third-generation Franco-American Mainer and Harvard University graduate. Visit BrucePoliquin.net for his most recent commentary and analysis on media outlets throughout the State about the important issues facing Maine families and their jobs.