Introduction - Tax Facts

 

 

The Problem We See (and Hear About)

 

Maine has one of the highest tax burdens in the country.

 

 

Underlying Problems We Don’t Necessarily See (or Hear About)

 

·        Maine is a low wage state. Our tax burden is particularly high because our incomes are low. Part of the answer is to stimulate the economy to produce more and better jobs.

 

·        Maine has high income taxes and property taxes, but a relatively low sales tax burden (in bottom third of states).

 

·        Maine’s sales tax revenues fluctuate greatly from year to year, because they are so reliant on sales of cars and building supplies (that go boom and bust). These fluctuations often encourage spending that cannot be sustained.

 

·        Maine has an outdated (1950s-style) sales tax structure with a very narrow base. Most states now tax services that Maine does not tax. Of the 168 categories of items that are taxed by states, Maine taxes only 24.  (Connecticut—by comparison—taxes 80.)

 

·        Visitors to Maine get tax breaks here that they don’t get in their home states! (These tax breaks are not needed to attract visitors; yet they keep the tax burden on Maine residents unnecessarily high.) 

 

·        High income tax rates encourage some Mainers to become non-residents (to live here one day less than 6 months). By doing so, we lose a human asset PLUS the sales tax revenue that we’d receive if those people remained in Maine for more of the year.

 

 

 

Maine Tax Reform and Relief Plan - Goals

 

1.    Cut income and  Property taxes for Maine residents:

This plan lowers the total tax burden for Maine residents and small businesses by $140 million – or an average of around $300 per person, per year - by providing dramatic cuts to income and property taxes and shifting more tax responsibility onto non-residents. 

2.    Grow the economy, and Maine small businesses by lowering the top rate:

This plan dramatically lowers the top income tax rate.  This change would provide a much needed boost to the economy.  It puts more money back in Mainers’ pockets to spend in the local economy, frees up capital for small business investments, and creates an attractive tax rate for businesses considering expansions in Maine. 

 

3.    Fix Maine’s complicated and dated tax system, improve economic stability:

Maine has one of the most volatile and narrow tax bases in the country.  Other states apply sales taxes to as many as 168 items, Maine taxes only 24.  This is a significant concern for both conservatives and progressives because revenue is unstable – when the few industries that Maine collects taxes on experience down-turns, the state’s revenues plummet and necessary programs must be severely cut.  The result is unstable fiscal planning and a lack of predictably for businesses.  In order for Maine to create a stable fiscal environment, the sales tax base must be broadened.

 

 

What the Tax Reform and Relief plan does:

 

ü      Lower the top marginal rate from 8.5 down to 6 percent

·         Moves Maine from the 7^th highest income tax rate in the country to 34^th

·         The vast majority of Maine’s small businesses pay tax at the individual income tax rate.  Lowering the top marginal tax rate helps businesses, as well as individuals, because it for small businesses to invest in new machinery and equipment and to hire additional employees

 

ü      Cut TOTAL taxes for Maine businesses and residents by $140 million

·         Cuts Maine’s overall tax burden by 4 percent, lowering the state’s national tax burden ranking

·         Cuts overall taxes for 90 percent of all Mainers, even after adjusted sales taxes

 

Cut Income taxes:

·         94 percent of all Mainers would see an income tax cut, averaging $377 per filer

·         Creates a resident tax credit to encourage residency and reduce income taxes for Mainers

·         Removes the Alternative Minimum Tax, and creates a new mortgage credit that increases the tax benefits for most Maine homeowners

 

Cut Property Taxes:

·         Provides $50 million in property tax relief for Maine residents and businesses

o        Increases funding for the circuit breaker program

o        Requires the state to fully fund the homestead exemption at $13,000 relieving local towns of that responsibility, but allows a local vote to increase the exemption up to $26,000

o        Dedicates 10 percent of all sales tax revenue increases collected locally to provide local property tax relief for both businesses and residents.

 

ü      Simplify Maine’s income tax system

·         Creates a new easy to fill out tax form - just three steps!

·         Couples Maine’s tax code with federal deductions, making filing easier for businesses and residents

·         Provides a new resident tax credit that cuts taxes and encourages people to live and work in Maine

·         Offers a new mortgage credit that increases the return for most Mainers

 

 

How is the Tax Reform and Relief plan funded?

 

ü      The Tax Reform and Relief plan is revenue neutral

·         The plan dedicates all the revenue raised from the sales tax expansion to income and property tax cuts, making it ‘revenue neutral’

·         However, because the plan shifts more responsibility to non-residents, it provides significantly more revenue for resident tax relief

 

ü      Places greater tax responsibility on non-residents

·         The $140 million tax cut for residents is achieved by creating income tax credits and residency incentives that benefit Maine residents, and transfers more responsibility to out-of-staters.

·         The broadening of the sales tax base is geared toward exporting more sales tax to out-of-staters.  In most cases, people visiting Maine are actually purchasing items and services tax-free here that they would otherwise pay taxes on at home.

 

ü      Broadens the Sales Tax base, removes exemptions

·         Impose sales tax on some services and remove some exemptions

o        Personal care services (such as spas, tanning and tattoos)

o        Personal property services (installation, repair, or maintenance of tangible personal property like cameras and computers)

o        Real property services (building and grounds maintenance)

o        Installation, repair, and maintenance services (not construction)

o        Transportation and delivery services (not business to business)

o        Amusement, entertainment, recreational services

·         Increase real estate transfer tax (currently less than 1/3 of rate in NH)

·         Increase excise tax on beer and wine (for the first time since the 1960s)

·         Expand and increase taxes on lodging and prepared foods to 8% (both from 7%)

·         Increase tax on car rentals to 15% (from 10%)

 

ü      Goods and services that are NOT taxed

·         Grocery staples, heating oil, electricity

·         Business to business services and manufacturing items that would pass costs onto consumers and hurt Maine businesses’ ability to compete

·         Specialized business services (e.g., accounting, attorneys, architects, etc.) These services are not taxed because they would only be taxed when the business is located in Maine, creating an unfair competitive advantage for businesses located out of state that can easily provide these services in Maine.

·         Various exemptions extended to non-profit organizations