Tax cut would give $21,000 to the wealthiest 1%; $1 to the bottom 20% of income
March 23, 2012
AUGUSTA – After lengthy debate in the Maine House today, a measure that would resurrect the publicly-rejected TABOR proposals that put the state budget on autopilot and shift costs to property taxpayers unexpectedly stalled in the House.
Democrats fought against the irresponsible and unfair proposal.
"Today the House moved three steps closer to passing the TABOR proposals rejected by Maine people,” said Rep. Seth Berry, D-Bowdoinham, the lead House Democrat on the Taxation Committee. “The majority thumbed its nose at compromise amendments to restore tax fairness, fiscal responsibility, property tax reductions, and to respect the will of Maine people.” We hope the debate today gave the Republicans pause.”
The bill, LD 849, ratchets down state revenues by gradually lowering Maine’s income tax rates to a flat 4 percent, with 75 percent of the benefit going to the top 20 percent of taxpayers. The bill would reduce the state income tax revenue by $600 million per year.
The proposal uses 40 percent of one-time surpluses that would typically be put in the state’s “rainy day” fund to make permanent cuts without paying for them in future years.
“This is as irresponsible as taking on a car payment after winning a $100 on a scratch ticket,” said Rep. David Webster, D-Freeport, who serves on the Appropriations and Financial Affairs. “That’s no way to pay the bills.”
During the floor debate in the House, Webster introduced an amendment to require that the tax cut for each future year is fully funded by surplus revenue, as supporters of the bill have claimed it already does. In reality, the bill pays only for the initial year, locking in and ratcheting down revenues into the future.
A new analysis by Maine Revenue Services shows the Republican TABOR bill, would give an average tax reduction of only $1 to the bottom 20 percent of income earners. This group includes, for example, a single parent of two working full-time at minimum wage. It also includes many low-income seniors without pensions, who depend on Social Security. By comparison, the tax cut would give an average reduction of over $21,000 to the wealthiest 1 percent of Maine residents. This group makes an average adjusted income of roughly three quarters of a million dollars.
Democrats also introduced two other amendments to attempt to make the TABOR bill benefit the middle class and those paying property taxes, but the Republican majority rejected the amendments.
“We should be looking to put more money in the pockets of middle class families, not helping the rich get richer,” said Rep. Walter Kumiega who introduced an amendment to make the tax cut more fair for middle and lower income earners.
The amendment would have increased Maine's Earned Income Tax Credit. It also uses the surplus funding to adjust the income tax brackets for all taxpayers, benefiting more families more fairly.
Rep. Peggy Rotundo, D-Lewiston, who serves on the Appropriations and Financial Affairs Committee said families back home would not want to pay the price for the cuts.
Rotundo said, “If we were to go home and ask working families in our district if they favored dropping the top tax rate for the top 1 percent and paying it for it by increasing their children’s tuition to community colleges; or removing services or prescription drugs for their aging parents; or eliminating funding for public safety, they would likely say ‘no’.”
The third amendment, sponsored by Berry, would put property tax reductions ahead of income tax reductions. As mandated by Maine voters in June 2004, the Berry amendment would put money first toward funding 55 percent of K-12 education.
According to the nonpartisan fiscal office of the Maine Legislature, full implementation of LD 849 as written would cause losses to Maine schools, roads, bridges, and towns totaling over $1.2 billion per biennium.
"This bill would enact future tax breaks to take credit for them now, and then let others make the tough choices to pay later,” said Berry. "The Legislature has had enough of that lately, and we hope our amendments may offer viable alternatives to moderates who still do believe in fairness, paying as you go, and putting people first.”
According to the Maine Center for Economic Policy, the proposal also puts Maine's credit rating at risk by reducing contributions to existing stabilization and reserve funds. It also weakens the state’s capacity to maintain long-term investments and to withstand future economic downturns in a manner that is fiscally responsible.
In a legislative bulletin, the Maine Municipal Association said “LD 849 is clearly moving away from achieving a more balanced tax burden…and puts income tax reduction as the Legislature’s unquestionable top priority even as property tax relief resources are being withheld.”
The bill has already been passed in the Maine Senate and will face votes in the Maine House next week.
Jodi Quintero [Berry, Kumiega, Rotundo, Webster] 287-1488, c. 841-6279