May 12, 2013

Two sides of reforming Maine taxes

Pro: A bipartisan plan would cut residents' taxes and improve our economy. Con: The irrational 'Gang of 11' proposals would make our tax structure less fair.

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Staff Photo Illustration/Michael Fisher


The Portland Press Herald/Maine Sunday Telegram wants to know what you, the readers, think about the tax reform plan proposed by the “Gang of 11.” Write to us by Wednesday, and we’ll present a representative sample of your views in next Sunday’s Telegram.

Letters may be emailed to (no attachments); faxed to (207) 791-6920; or mailed to: Letters to the Editor, Portland Press Herald/Maine Sunday Telegram, P.O. Box 1460, Portland, ME 04104-5009.

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What they don't understand is that because Maine's consumption taxes are not deductible on federal tax returns, but Maine income, property and estate taxes are deductible, the shift in Maine taxes will result in a net $100 million in increased federal taxes. Accordingly, to net a $160 million increase in revenue for the state, the net Maine and federal tax increase from "tax reform" is $260 million.

The "Gang of 11" and their Ph.D. economist don't seem to understand the interaction of the federal and Maine tax laws or simple math.

There are too many irrational tax policy provisions in the current plan to address in detail, but here are just a few:

The plan gives millions in corporate tax cuts, the vast majority of which go to out of state corporations like Walmart. This policy is even more irrational considering that in 2006 Maine passed a very favorable tax law that greatly reduces Maine taxes on corporations that locate facilities and employees in Maine.

The plan gives millions in estate- and income-tax cuts to a small group of millionaires under the myth that these tax cuts will keep Mainers from leaving Maine. The only credible studies done have shown that states that lower taxes to keep residents from migrating to lower-tax states resulted in significant decreases in net tax revenues.

The plan talks about how the sales-tax increases will be partially paid by nonresidents, but fails to understand that a significant amount of income-tax and estate-tax cuts will benefit nonresidents.

The plan includes taxing Social Security benefits, which are currently not taxed in Maine. For most retirees, taxing Social Security would more than offset the lowering of the income-tax rate.

The plan eliminates itemized deductions, which will result in many elderly taxpayers with high medical deductions having an income-tax increase. The elimination of all itemized deductions will also cause many middle-income taxpayers to have an income-tax increase.

The plan will cause significant consumption-tax increases for over 100,000 low-income taxpayers who don't currently file an income-tax return. Maine Revenue Services has estimated in the past that at least 50 percent of these taxpayers will not file a return to get a refundable tax credit like under this plan.

The 45 percent increase in consumption taxes will drive even more Mainers near the N.H. border to shop in that state.

This "tax reform" plan has been proposed in part to raise $160 million as an alternative to the governor's budget that reduces revenue sharing to the cities and towns and will result in increased property taxes. Because consumption taxes are both more regressive than property taxes and not deductible, increasing them to lower property taxes is irrational.

The only rational alternative to the governor's budget is to reverse a portion or all of the income- and estate-tax cuts passed in 2011 that take effect in 2013.

Albert DiMillo is a former accountant who lives in South Portland.

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