Revenue-neutral tax reform package designed to cut
the state income tax for Mainers, dropping the top income tax rate
by over 20%; stimulate economic development; export tax burden; and
stabilize revenues.
Because out-of-staters will pay more of their fair share, practically
all benefits will flow back to Mainers, resident tax burden will
be decreased by over $57.1 million a year.
• Mainers in every income category will benefit.
• Focus on income taxes would help stimulate economy.
Governor's changes
Governor Baldacci introduced some changes to the final bill passed
by the Legislature, which modestly changed some of the provisions
in the legislation. Besides the list below, the bill remained in
tact and the overall components and goals of the legislation remain
the same.
Changes sought by Governor Baldacci:
- The original bill lowered the top income tax rate from 8.5
percent to 6.5 percent for all Mainers, but the Governor’s
changes lower the top income tax rate for incomes above $250,000
from
8.5 percent to 6.85 percent, and kept the reduction from
8.5 to 6.5 percent
for all others Maine residents.
- Made a portion of the Earned Income Tax Credit refundable
for lower and middle income families.
- Increased funding for tourism marketing even more than the
original bill.
- Removed recreational/physical fitness activities such as a
tennis, racket ball, bowling, swimming, golf and skiing from
the “amusements
and reception” services that the sales tax will be
expanded to, and removed taxes on proceeds from arcade games.
- Removed the increase in the real estate transfer tax.
Impacts
Maine’s income tax rate will go from one of highest in
nation to middle-of-the-pack.
This will:
• Help change the perception of Maine as a high taxed state.
• Make Maine more competitive for business attraction and investment.
• Reduce incentives that drive some Mainers to become non-residents.
• Directly support small business (since most small businesses are
partnerships or S-corps that pay taxes through individual
income tax).
Maine’s overall resident tax burden (from ALL
sources) will drop by more than $57.1 million/year.
This will:
• Provide an overall tax decrease of between $100 and
$300 for most Maine tax filers every year.
•
Pump more money into Maine’s economy.
• Encourage individuals to become Maine residents and provide incentives
for owners of small businesses that file as
individuals to locate in the state.
Maine’s tax base will remain competitive in the
areas where it is already, and become more competitive in others.
• Maine would still have a narrower sales tax base
than most states.
• Maine would still have a lower sales tax rate (5%) than the national
average (5.75%)
•
Maine’s meals and lodging tax would still be far
below most travel destinations.
This plan would increase competitiveness
for Maine business.
• A lower income tax, closer to the middle of the
pack nationally
• A lower overall tax burden for Maine people, increasing incomes
as fuel for the economy
• Lower business taxes and more appeal for business growth
Maine’s future tax revenues will be more stable.
• Lowering capital gains rate and broadening sales
tax base will both reduce volatility.
•
A more stable budget impacts the whole economy – businesses
that contract with the state can better plan for
the future
The Time to implement tax
reform is NOW!
• Hard economic times demand action. Maine
must not only spend wisely, but collect revenues wisely (in
ways
that export
more tax burden and spur needed economic development).
•
Maine has and will continue to cut spending to balance its budget.
It’s foolhardy to think that any extra funds
could be found to lower taxes. But tax burden can
be reduced
significantly
through a revenue-neutral tax reform plan.
• Some critics say that this is not the time to raise or expand any
sales tax. They forget that even AFTER any extra
sales taxes are paid, Maine people will have more money in their pockets.
• We cannot afford to leave $57.1 million/year on the table,
and the Legislature and the Governor recognized that.
Bill Components
- Lowers top income tax rate from 8.5% to 6.5% (6.85% for those
with incomes above $250,000) and replaces the current tiers
with a progressive household credit (which lowers the effective
tax rate below 6.5% for most for most Mainers).
- Taxpayers will choose between a standard deductible credit
and an itemized deductible credit (based on the amount
of state qualified itemized deductions on a taxpayer’s
federal tax return). NOTE: This new system incorporates the popular
deductions for mortgage interest and charitable giving while
providing more benefit to most Mainers. Taxpayers will have
a choice between taking a standard or itemized credit based
on your federal income tax deductions.
- Removes exemptions for select consumer services (amusements
and recreation; repair and maintenance services, excluding
home repairs; interstate telephone charges; and some personal
property services such as dry cleaning, pet boarding, and storage
units). NOTE: This is a drastically scaled-down version of
what was proposed in 2007. The focus of the new system is items
that are exportable, discretionary, or counter-cyclical, and
where the business is already collecting sales tax. Business
to business services and certain consumer services (such as
haircuts) are excluded.
- Increases the tax on prepared meals and lodging to from 7%
to 8.5%, while simultaneously investing more funds in tourism
promotion (almost $4 million for the 2010-2011 biennium). Raise
the tax on short-term car rentals from 10% to 12.5%.
Timetable
• Bill was signed by Governor Baldacci on June 12th.
All tax changes take effect on January 1st, 2010, except
for the increase in the car rental tax, which starts October
1st,
2009.