Republican radio address: Tax Scheme

For the weekend of May 1-2

Greetings, this is Kathy Chase, state representative from Wells. In the June 8th election, we will be voting on candidates for governor of the two major parties and four different bond questions. Voters’ decisions will shape Maine’s course going forward.

But there’s another ballot issue that deserves careful consideration because it will directly affect your pocketbook. That is Question One, a People’s Veto, asking if voters want to repeal a tax overhaul pushed through the Legislature last year and signed into law by the governor. A grassroots alliance of Republicans and Green Independents collected more than 60,000 signatures to put the law on hold and let the people decide.

Obviously, Republicans and Greens are an odd combination; but as they say, politics makes for strange bedfellows. Neither group was fooled by Democrats’ claims that this was somehow an improvement on the current tax system. In fact, after analyzing the details, Republicans discovered that this is actually a tax increase disguised as a tax cut unless you make more than $330,000 a year.

The deepest changes take place in the state income tax. The plan limits itemized deductions for such things as mortgage interest, property taxes, medical expenses and charitable contributions. The deductions are replaced by a household credit; but the credit starts phasing out at $27,000 for single taxpayers and $55,000 for married couples. Eventually, it disappears completely. The limiting of itemized deductions explains why 82,000 taxpayers will see an average tax increase of $450; and 29,000 taxpayers will get an income tax increase of more than $1,000. That works out to a backdoor tax increase on one out of every seven resident tax filers.

The rest of the individual tax filers would see their taxes jacked up by a hidden time bomb in the law. It suspends the indexing of the tax tables for inflation until 2014. The tiny $39 income tax cut for average-income Mainers would be wiped out by higher income taxes four years from now. In fact, that halt in indexing will rake in an additional $45 million in income taxes.

The Democrats’ plan also puts a huge new burden on thousands of small business owners. For the first time, they would have to collect sales taxes and deal with the complicated revenue rules for filing and reporting. The plan expands the sales tax to more than 100 services and activities, including car repairs, house cleaning and long-distance phone calls.

The Greens, for their part, didn’t like the highly regressive features. The new law eliminates the lower tax brackets, such as the 2 percent rate and the 4.5 percent rate. It puts everyone at a flat rate of 6.5 percent. The plan is especially tough on the 300,000 Mainers who don’t make enough money to even file a tax return. For these folks, this is nothing but a sales tax increase. They can apply for a $50 credit to compensate for the additional sales taxes. But they have to file a tax return to get it, and filing might cost more than the credit is worth. Maine Revenue Services figures that only half of those folks will apply for the credit. The $6 million saved by shortchanging the poor and the elderly will go towards rewarding the big winners in this wild game of income tax roulette – those making more than $330,000 a year.

The campaigns for and against the People’s Veto are now heating up big time. But we already are seeing the line of attack from a group deceptively named No Higher Taxes for Maine. That’s the group fighting the repeal; and it is funded by those who stand to benefit the most – well-heeled Democratic donors.

They can’t defend the scheme on its merits, so their campaign has already resorted to half-truths and trickery. They may be hoping that the issue is so complicated that voters won’t be able to tell fact from fiction until it’s too late.

A spokeswoman for the pro-tax group, Crystal Canney, is a former aide to Governor Baldacci. In a recent newspaper interview, she told a reporter that “Maine people will see a 30 percent increase in their income tax rate” if the repeal goes through. Then she added, “On the other hand, if the law is allowed to stand, income taxes will be reduced for 95 percent of the people.”

Obviously, she is playing fast and loose with the facts. If the repeal passes, the tax system will remain the same. If it fails, this massive and complicated new law will go into effect. If you are one of the 4,400 lucky Mainers who make more than $330,000 a year, the new system would cut your taxes by about $6,000. For the rest of us, it’s a bad deal.

This is Kathy Chase. Thank you for listening.