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Rep. Ryan Harmon (R-Palermo)
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For Immediate Release

Date: 10/11/12

Rep. Harmon Op-Ed: Tax changes benefit Maine's low and middle income earners
Tax changes benefit Maine's low and middle income earners

To the Republican Journal

By Rep. Ryan Harmon

Starting January 1, 2013, Maine residents will enjoy the first significant tax cut in decades. The tax package passed last year is the biggest reduction in the state's history, totaling $150 million during the current two-year budget cycle. Beginning in 2015, with all cuts in effect, the net reductions enacted by the Legislature will add up to approximately $235 million per year.

The states that are growing and creating jobs are those that are lowering taxes, not those raising them, and analysts predict a more robust Maine economy as the changes take hold. The non-partisan Beacon Hill Institute at Suffolk University, for example, calculates that the tax cuts will generate at least 3,700 jobs by 2015 and increase Mainers' disposable income by about $270 million.

Combined with other legislative initiatives, such as regulatory reform and an overhaul of the health insurance system, the tax cuts will enhance the state's business-friendliness quotient, which has traditionally been in the basement in national rankings. With earlier reforms already making a difference, Maine has jumped five spots in one year, from 40th to 35th, in CNBC's list of the top states for business.

The tax overhaul promises to build on that momentum. It features business incentives to foster economic growth, laying the groundwork for more entrepreneurial activity and the benefits that will flow from it - job creation and economically stronger communities.

For a majority of Mainers, however, it is the income tax cuts that will have the most immediate impact, because they will affect take-home pay. In general terms, middle-income families can expect a cut of about 15 percent, while families in the top 10 percent of incomes will see an average reduction of 8.4 percent.

Under the former system, Maine had four income tax brackets - 2 percent, 4.5 percent, 7 percent and 8.5 percent. The brackets have been reduced to three - zero percent, 6.5 percent and the new top rate, 7.95 percent. Thanks to the new zero percent bracket, exempting the first $10,350 of income, some 70,000 low-income residents will owe zero income taxes.

Freeing up these low-income filers from the income tax is partly why Maine Revenue Services (MRS) describes the new system as more progressive than the old one. Those earning more than $119,000, for instance, carried 55 percent of the income tax load in the old system. Their share now rises to 57 percent.

In the final analysis, the 80 percent of taxpayers in the low and moderate groups, who currently pay only 24 percent of all income taxes, will receive 33 percent of the cuts. The Maine Today newspapers, such as the Kennebec Journal and Morning Sentinel, analyzed the new arrangement and concluded, "Maine's income tax is more progressive because of the changes."

In the middle income levels, families will benefit from large increases in standard deductions and personal exemptions to match federal amounts. According to an MRS analysis, some 460,000 families will see an average tax decrease of $337 in 2013.

Consider some typical situations. In 2013, a family of four electing the standard deduction will owe no income tax if their adjusted gross income (AGI) is below $35,750, versus the current no-tax threshold of $21,000. Additionally, a family of four with an AGI of $50,000, using the standard deduction, will see a tax cut of $300 - a 24.4 percent reduction.

As a bonus, the tax reform also eliminates the "marriage penalty," the state's Alternative Minimum Tax and the sales tax on meals served at retirement facilities.

Finally, let me say a word about another major tax change - the doubling of the estate tax exemption. Most states don't even have an estate tax, but Maine's "death tax" has wrecked countless family-owned businesses, in such areas as farming, fishing and forestry. These businesses 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.

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, starting next year. (The federal exemption for 2012 is $5 million.)

A progressive rate structure for larger estates also goes into effect. For those 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. The rate on any estate over $8 million will be 12 percent.

These tax reforms, one of the highlights of the 125th Legislature, promise to benefit Mainers and our economy for years to come. As a member of the Taxation Committee, I was proud to play a part in their creation. ###

State Rep. Ryan Harmon (R-Palermo) serves on the Legislature's Taxation Committee.

Jay Finegan
Maine House Republicans
Tel: (207) 287-1445