May 1, 2013

Maine's in as a lab for tax reform

A major proposal, due out today, would slash the state income tax and is similar to plans in other states.

By Steve Mistler smistler@pressherald.com
State House Bureau

(Continued from page 1)

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In this April 15, 2010 file photo, taxpayers sift through tax forms a government office. Maine will become one of five states to consider sweeping tax changes this year when a bipartisan coalition of lawmakers releases its highly anticipated reform plan Wednesday. (AP Photo/Seth Perlman)

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Many tax policy experts believe that sales taxes are more regressive, disproportionately affecting low- and middle-income residents. 

"Low-income people tend to consume more of their paychecks," Gordon said. "A sales tax is a tax on consumption, so a sales tax affects them."

The progressive Institute on Taxation and Economic Policy had a stronger assessment of Jindal's plan. It found that the poorest 60 percent of Louisiana taxpayers would pay more in taxes. 

Earlier this year, the same group published a report showing that lower-income people already pay a higher percentage of their annual income in sales taxes than high earners.

According to the report, Mainers with an average annual salary of $11,800 devoted 6.2 percent of their earnings to sales and excise taxes, while individuals earning $25,100 paid 5.1 percent. Those earning $328,000 or more paid an average of 0.7 percent in sales taxes. 

A draft of the Maine coalition's plan appears to anticipate such effects. It highlights a "tax fairness credit" to give low- and middle-income families $1,000 cash payments to offset the regressivity of sales taxes. 

Drenkard said similar offset schemes are common in other states that are considering tax swaps. He acknowledged that progressive tax groups often cite the regressivity of sales taxes, but said the impact on low-income residents could lessen if the plan spurs growth. 

"If all income groups are getting better because of the economy, then the distribution shift doesn't matter as much," he said. 

That's one argument that Maine lawmakers will consider after the "Gang of 11" coalition presents its plan Wednesday. There are many others, including reducing the state's corporate tax and eliminating its estate tax.

Woodbury said all of the tax cuts are designed to provide tax relief for Mainers, lure part-time residents to make the state their primary home, and attract businesses.

The migration of businesses because of tax policy is an ongoing national debate. Gordon said the evidence is "murky" that businesses choose states because of corporate taxes. 

"Businesses tend to care more about an educated work force, access to infrastructure and affordable health care, and their ability to attract and retain workers," she said. 

Drenkard said businesses do pay attention to corporate taxes when they consider location.

Businesses have proven influential in the tax policy debate. In April, Jindal announced that he was temporarily shelving his no-income-tax proposal in response to an outcry from businesses that would be affected. 

Woodbury and the Maine coalition believes its plan is pro-growth, pro-business. But it, too, is expected to meet resistance from some influential industry groups.   

Steve Mistler can be contacted at 620-7016 or at:

smistler@pressherald.com

twitter.com/stevemistler 

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