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Opinion

Date: 04/22/11

Sweeping changes coming to Maine's tax system

By Rep. Ryan Harmon

When this legislative session comes to an end, sometime in June, Maine residents can count on one thing - tax relief is on the way. Hundreds of thousands of Maine families, farms, and small businesses will see their taxes decline for the first time in decades.

On April 13, the Taxation Committee wrapped up work on a tax package for inclusion in the state budget for fiscal years 2012 and 2013. The plan lowers Maine income taxes across the board and makes more than a dozen other changes to improve the state's tax environment. Income tax cuts would average $243 in 2012 and $343 in 2013.

When Mainers can keep more of their money, they can save it or spend it on goods and services, thus lifting the overall economy. Increased economic activity will generate more jobs and provide a lifeline for small businesses, many of which have been hanging on by their fingernails throughout the recession. A healthier business climate will benefit residents across the state.

The Committee made adjustments to the governor's budget proposal that would eliminate income tax liability for some 70,000 low-income filers starting in 2012. The first $10,350 of income for any Maine resident will be exempt from the income tax. Moreover, the "marriage penalty" is slated to go, along with the much-despised Alternative Minimum Tax.

Among the many tax changes is the elimination of the state's 7 percent tax on meals served at retirement homes, which has been an expensive irritant for seniors on fixed incomes. However, the major reductions come on the income tax, which would fall by a cumulative $45 million in 2012 and $134 million in 2013. By 2015, the total income tax cut would reach $183 million.

The tax reduction package now moves to the Appropriations and Financial Affairs Committee for consideration as they craft the state budget. The Appropriations panel could change the new tax structure if necessary, as nothing is final until the Legislature passes the financial blueprint.

Assuming the tax package remains largely intact, it would simplify Maine's complicated income tax system by reducing the number of tax brackets from four to two. For the 2012 tax year the rates would be 6.5 percent and 8.5 percent. In 2013, the rates would be set at 6.5 percent and 7.95 percent. Thanks to higher exemption and deduction amounts, however, those rates would kick in at much higher income levels.

This plan brings the Maine standard deduction up to the federal level. Under existing law, the 2012 Maine standard deduction for married couples filing jointly is projected to be $9,800, according to Maine Revenue Services (MRS). Our change increases that to $15,000. An estimated 134,000 families will benefit from this adjustment. (Standard deductions for single and head of household filers already conform to the federal amounts.)

Additionally, our proposal increases Maine's personal exemption to $3,750, up from $2,850, where it has stood since 2000. A MRS analysis projects that more than 420,000 families will benefit from this change.

The combined effect of these changes yields significant savings. In 2013, for example, a family of four electing the standard deduction would owe no income tax if their adjusted gross income is below $35,750, compared to a no-tax threshold of $21,400 in the current law. A family of four with an adjusted gross income of $60,000 would owe $1,576 instead of $1,928 under the existing system.

To help the business community, we retained the proposal to adopt Section 179 expensing, which allows small businesses to accelerate depreciation on investments. Furthermore, to give a lift to our fishing industry, we provided a credit for investment in fishery infrastructure and eliminated the sales tax on fuel used by commercial fishing vessels in the Gulf of Maine.

Overall, this is a very positive compact for Maine residents. It provides the framework to move to a flat income tax over time, while allowing Mainers to keep more of the money they earn.

I want to thank all of my constituents for your valuable input through conversations via phone and/or email. Please don't hesitate to contact me at any time if you have additional questions or concerns. ###

State Rep. Ryan Harmon (R-Palermo) serves on the Taxation Committee and represents the towns of Burnham, Freedom, Knox, Montville, Palermo, Thorndike, Troy and Unity.