Revenue forecasters believe the state will collect nearly $181 million more in taxes over the next two fiscal years than originally expected – money the state needs to dig out of an anticipated $670 million hole in the next two-year budget.

Revenue projections for the current fiscal year also were increased by $86 million, and that money can be put toward any supplemental budget requests needed to pay the bills through the end of June.

The increased revenue in fiscal year 2008 and 2009 is coming from income taxes – $105 million from individuals and $102 million from corporations – and offset by projected drops in the sales tax.

It’s a similar story for the rest of this fiscal year, when the individual and corporate income tax line is expected to go up by $90 million and the sales tax line down by more than $3 million. That increased income tax is being paid by the state’s wealthiest individuals, who have seen their incomes and capital gains grow, and by a small group of national corporations that have a presence in Maine.

“We are somewhat dependent on 25,000 upper-income taxpayers and a dozen or so corporations on the corporate side that are fueling a lot of these recommended changes,” said Mike Allen, the chief forecaster at the Maine Revenue Service.

Allen said corporations paying the taxes are national firms doing business here, and a good chunk of the increased revenue is coming from energy companies riding high on oil profits.

On the individual income tax side, the significant growth is coming from wealthier taxpayers, those earning $75,000 or more, while there has been slow-to-moderate growth in income on the middle and lower end of the scale. And, while capital gains are still contributing, they appear to be at their peak and are slated to level off over the next several years.

Grant Pennoyer, director of the state’s Office of Fiscal and Program Review, was worried about the sustainability of capital gains, remembering the bust in 2001, when the stock market bubble burst.

“I’m troubled by the upward revision on income tax,” he said, questioning whether capital gains would drop more suddenly than predicted in the financial forecasting model.

Allen said it no doubt will drop suddenly, but there is no way to predict when, and he’s trying to ratchet it down. “We’re out on a limb,” he said. “I’m trying to make sure it’s not on the top of the tree, but somewhere in the middle or on the bottom.”

In the end, the state’s Revenue Forecasting Committee accepted Allen’s projections and officially recognized the anticipated revenue, making it available for the Legislature to spend.

That will help when the supplemental budget for this fiscal year and the proposed budget for 2008 and 2009 are submitted by Gov. John Baldacci on Jan. 5.

There is no projection on the size of the supplemental budget, but the biennial budget already is expected to be short $570 million in operating funds, and another $102 million has been promised to the state’s hospitals in back Medicaid payments.

Ryan Lowe, the state budget officer, said the improved financial forecast was good news.

“It’s a step in the right direction,” he said.

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