You may have heard about the new tax bill in Augusta designed to lower Maine income taxes.  I just received some hard facts on it, and am including it here for your reading enjoyment..

 

Tax Reform & Relief Package

 

Overall Concept

Revenue-neutral tax reform package designed to cut the state income tax for Mainers,

dropping the top income tax rate by over 20% from 8.5% to 6.5%; stimulate economic

development; export tax burden; and stabilize revenues.

Because out-of-staters will pay more of a fair share, practically all benefits will flow back

to Mainers; resident tax burden will be decreased by over $75 million a year.

• Mainers in every income category will benefit.

• Focus on income taxes will help stimulate economy.

 

Impacts

Maine's income tax rate will go from one of highest in the nation to the middle-of-the-pack.

• Put more money in the pockets of Maine families

• Directly support small business (since most small businesses are partnerships or S-corps that pay

taxes through individual income tax).

• Help change the perception of Maine as a high taxed state.

• Make Maine more competitive for business attraction and investment.

• Reduce incentives that drive some Mainers to become non-residents.

Mainers' tax burden (from ALL sources) will drop by more than $75 million/year.

• Provide an overall tax decrease of between $100 and $500 for most Maine tax filers every year.

• Pump more money into Maine's economy.

• Encourage individuals to become Maine residents and provide incentives for owners of small

businesses that file as individuals to locate in the state.

Maine's tax base will become more competitive in the areas where it is already, and become more

competitive in others.

• Maine would still have a lower sales tax rate (5%) than the national average (5.75%).

• Maine would still have a narrower sales tax base than most states.

• Maine's meals and lodging tax will still be far below most travel destinations.

This plan would increase competitiveness for Maine businesses.

• A lower income tax, closer to the middle of the pack nationally

• Putting $100-$500 more in the pockets of Maine people, increasing incomes as fuel for the

economy.

• Lower business taxes and create more appeal for business growth.

Maine's future tax revenues will be more stable.

• Lowering capital gains rate and broadening sales tax base will both reduce volatility.

• A more stable budget impacts the whole economy – businesses that contract with the state can

better plan for the future.

 

The Time is NOW!

• Hard economic times demand action. Maine must not only spend wisely, but collect revenues

wisely (in ways that export more tax burden and spur needed economic development).

• Maine will fill a budget gap of over 1 billion dollars this legislative session. It's foolhardy to

think that any extra funds could be found to pay to lower taxes. But tax burden can be reduced

significantly through a revenue-neutral tax reform plan. That's the only practical approach.

• Even AFTER any extra sales taxes are paid, Maine people will have an additional $100-$500 in

their pockets each year

• We can't afford to leave $75 million/year on the table. This is the time to act!

 

Bill Components

• Lower top income tax rate from 8.5% to 6.5% and replace the current tiers with a

progressive household credit (which lowers the effective tax rate below 6.5% for most for

most Mainers).

o Taxpayers would choose between a standard deductible credit and an itemized deductible

credit (based on the amount of state qualified itemized deductions on a taxpayer's federal

tax return). NOTE: This new system incorporates the popular deductions for mortgage

interest and charitable giving while providing more benefit to most Mainers. Taxpayers

will have a choice between taking the personal exemption or the standard and itemized

deductions.

• Remove exemptions for select consumer services

o Amusements and recreation

o Rare and occupational repair and maintenance services, excluding home repairs

o Taxi and limo services

o Interstate telephone charges (It was previously thought that Federal law barred states

from instituting taxes on interstate telephone charges. It has since been resolved and

states are allowed to, so many states have consequently imposed sales taxes.)

o Some personal property services such as dry cleaning, pet boarding, and storage units

o Transportation and courier services

􀂃 NOTE: This is a drastically scaled-down version of what was proposed in 2007.

The current focus is items that are exportable, discretionary, or counter-cyclical,

and where the business is already collecting sales tax. Business to business

services and certain consumer services (such as haircuts) are excluded.

• Increase tax on prepared meals and lodging to from 7% to 8.5%, while simultaneously investing

more funds in tourism promotion. Raise the tax on short-term car rentals from 10% to 15%.

Increase the real estate transfer tax modestly for homes worth over $500,000. Retain the RETT at

current level (.44%), except that for a residential property sold for more than $500,000, the

amount over $500,000 will be taxed at 1%.

• This is different from last year's plan because it places a greater emphasis on lowering the income

tax rate and does not extend the sales tax to items that are less exportable or to businesses

that have not collected sales tax before.

 

Timetable

• Bill was printed on March 17th. It is L.D. 1088.

• Bill is expected to be heard by Taxation Committee in late March or early April