Tax overhaul helps wealthy, hurts working poor

On June 11th, the Maine Legislature passed the most radical tax overhaul in 40 years. The new law vastly expands our 5 percent sales tax to services and activities of all kinds, such as car repairs, movie tickets and even hiring a clown for a child’s birthday party. The expansion of the sales tax is regressive, meaning it hurts the poor more than the wealthy. But the real injustice is how the law’s complicated income tax changes reward Maine’s richest residents at the expense of the poor and middle class.

If you make more than $400,000, you will love this new tax scheme. If you are a family of four with a household income of $70,000, you could end up paying more taxes than you do now. And if you are poor or elderly and on a fixed income, brace yourself for higher taxes.

According to Maine Revenue Services, at least 86,000 Maine families will be tax losers under the new scheme, paying on average $439 more per year than they pay now. That is the best case scenario. An independent analysis by a certified public accountant suggests that many of Maine’s 665,000 taxpaying households, if not most, will end up with higher taxes. The law is so bad that it has been labeled “Frankenstein Tax Reform” by the lead economist at the Maine Heritage Policy Center.

This atrocious bill, LD 1495, was passed by the Democrats in the Legislature. In the waning moments of the session, a 33-page tome was dropped on legislators’ desk. It was packed with small print and dense, turgid legalese so confusing that most legislators had no idea what it contained. We have since seen similar displays of irresponsibility in Washington, where members of Congress are forced to vote on 1,000-page bills that they have had no time to read.

Nonetheless, in the Maine Legislature, the majority Democrats voted nearly in lockstep to pass the bill. In the House, not even one single Republican voted for it. In the Senate, every Republican except one voted against it. The governor quickly signed it into law.

A few days later Republican Party leaders launched a drive to repeal the law before it can take effect on January 1, 2010. This people’s veto campaign, known as Still Fed Up With Taxes, is well under way. Petitions are circulating throughout the state, and knowledgeable residents are lining up to sign them. The effort needs some 55,000 signatures on petitions by early September to make the November ballot. If it fails, this damaging law will go into effect on schedule.

The Democratic authors of the bill basically have said “trust us” when quizzed about the bill by skeptical members of the public. But too many of us remember similar promises back in 2003, when we were assured that Dirigo Health was going to lower the cost of health insurance and insure all 131,000 uninsured Mainers in five years. It’s been six years; and despite spending $150 million on the program, less than 10,000 people are enrolled in the plan.

In 2005, we were told that LD 1 was going to bring “bold and historic” tax relief. In 2007, we were told to trust the Democrats that school consolidation would lower the cost of education statewide and cut property taxes by 15 percent. By now, these promises of “trust us” have become bad jokes.

The big promise in this tax bill is that it will reduce the income tax rate from 8.5 percent to 6.5 percent. That sounds nice, but the fact is that only the wealthiest Mainers, making over $400,000 or so, will see any real relief. For them, it will be substantial, averaging around $6,000 a year. The snag is that 90 percent of Maine taxpayers pay an effective rate of less than 4 percent. Our current tax system has four brackets, ranging from 2 percent to 8.5 percent. They are now being replaced by one rate – 6.5 percent.

Consider a married couple with two kids and a total income of $70,000. After taking the standard deduction and the personal exemptions, their Maine tax under the current law will be $2,761 – a rate of 3.9 percent. And get this: LD 1495 eliminates the deductions for exemptions and the standard deduction or itemized deductions. They are being replaced with a “household credit,” but that credit is phased out as your income rises. In short, while the Democrats say rates are being reduced, much more of your income will now be taxable.

And remember, you will also be paying sales taxes on things never taxed before – amusement and recreation activities such as water parks, sporting events and fairs and repair and installation of a whole slew of things, from lawn equipment and appliances to office equipment and guns to shoes.

The meals and lodging tax jumps from 7 percent to 8.5 percent. Long distance phone calls will be taxed. Also taxed will be admission to shows and exhibitions and scenic sightseeing excursions by almost any conveyance, even blimps. Nearly every kind of entertainment will be taxed – bands, disc jockeys, jugglers, clowns and ventriloquists. And don’t forget all those personal services that will now be taxed, from dry cleaning and car washing to pet services. If you moor a boat or keep it in a marina slip, moorings and slips will be taxed. And if you’ve finally had enough and decide to move out of state, moving services will be taxed.

This monstrosity of a bill needs to be repealed. Let’s hope Mainers are once against given the chance for a people’s veto. I think we’d see the same outcome that we saw last year, when voters repealed the tax on beer and wine by a nearly two-to-one margin.

State Rep. Jeff Gifford (R-Lincoln) serves on the Agriculture, Conservation and Forestry Committee