For Immediate Release
To the Portland Press Herald
By Rep. Amy Volk
Thanks to action by the Maine Legislature, state income taxes are going down next year.
Middle-income families can expect a cut of about 15 percent, while families in the top 10 percent will see an average reduction of 8.4 percent. According to Maine Revenue Services, some 460,000 households will see an average cut of $337 in 2013. Moreover, for approximately 70,000 low- and even moderate-income Mainers, income tax liability will be eliminated entirely as a result of the new zero percent tax bracket.
These cuts passed the Legislature with strong bipartisan support as part of the state's two-year budget.
Less well known is another important change in the tax reform package. This one deals with the estate tax, sometimes called the "death tax." Most states don't impose any estate tax at all, but Maine has had one for years.
Until now, our estate tax exclusion has stood at $1 million. That's the amount of property that can be transferred to your descendants tax-free, at least at the state level (a word on the federal estate tax in a moment). The so-called "gross estate," on which the tax is based, includes cash and securities, real estate, equipment, insurance, trusts, annuities, business interests and other assets. Tax authorities use the fair market value of these items, not what you paid for them.
In Maine, the low exclusion level has been highly detrimental. For example, it's a major reason so many wealthy retirees change their legal residence from Maine to Florida or someplace else with no estate tax. They then spend at least six months and a day outside Maine, returning here as "snowbirds." Their major purchases are made somewhere else. Professional services they require - accounting, insurance and so on - are provided in other states. Maine loses their income tax payments, and Maine businesses lose their patronage.
Estate taxes also have decimated countless small, family-owned businesses, in such areas as farming, fishing and forestry, which may be rich in land and equipment but poor in cash. The heirs to many successful enterprises - built up over years of toil - have been forced to sell off assets, subdivide property or liquidate completely to pay estate taxes.
Normally, the most valuable asset on a farm is the land itself. Good farmland is often coveted by developers, who would chop it into building lots. That potential use drives up the value of the land, which in turn drives up the estate tax when a farmer dies. In many such cases, passing the farm to the next generation intact is nearly impossible.
The loss or breakup of a farm is a sad event in Maine. The community loses open space and part of its character. State Senator Tom Saviello, writing in a weekly newspaper called The Irregular, noted that family farms are a way of life in Maine. "Passed down from generation to generation," he writes, "family farms provide not only a wholesome and healthy lifestyle for the farm families that live on them, but build a strong work ethic for their children. Family farms contribute sources of local food, recreational opportunities and jobs for members of their communities."
To help preserve Maine farms and small businesses, and to encourage retirees to stay here, the Legislature increased the estate tax exemption from $1 million to $2 million, beginning January 1, 2013. A progressive rate structure also goes into effect to ease the tax "cliff" when one goes over the exclusion limit. For estates valued at $2 million to $5 million, the tax is 8 percent. For those valued at $5 million to $8 million, the rate goes to 10 percent on the amount over $5 million. The rate on any estate over $8 million will be 12 percent, the new top marginal rate.
This estate tax initiative was designed to save jobs and our unique quality of life. It was not driven by the far right wing of the Republican Party, but by farmers' and small business owners' pleas for help. For those who think this is a Republican "tax giveaway for the rich," I would point out that the estate tax amendment was presented by a Democratic senator and passed the Maine Senate 35-0.
The real threat now lies in Washington. The federal estate tax exclusion this year is just over $5 million, with a 35 percent tax levied on any higher amount. Unless the Bush-era tax cuts are extended, however, the exemption will drop to $1 million next year, and any amount above that level will be taxed at 55 percent. That would pretty much destroy the good work done by the 125th Legislature here in Maine. ###
State Rep. Amy Volk (R-Scarborough) serves on the Labor, Commerce, Research and Economic Development Committee
Maine House Republicans
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