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Maine Revenues Services Data shows the plan makes the tax system more progressive
July 28, 2009
Augusta, ME—Today the Maine Green Independent Party and the conservatives of the Maine Republican Party teamed up to oppose the first major tax reform legislation to pass the state Legislature in forty years on a faulty premise. The contention of the Maine Green Independent Party that the new tax code is a flat tax is incorrect. The new system institutes a singular tax rate and then lowers the tax rates of individual taxpayers through a system of credits based on income. In fact, most taxpayers will pay income taxes rates of 4, 3, and 2 percent.
“What the Greens have missed most is that the new system is anything but a flat tax,” said House Majority Leader John Piotti. “According to Maine Revenue Services, it actually increases the progressive nature of our tax system. The Greens apparently read one line of the bill, didn’t look at the details, and then decided to oppose it. If they had taken the time to study what the bill actually does, they would have realized that it accomplished the goals they espouse: a progressive tax system that gives the biggest break to lower income working people.”
By any accepted measure, the new tax system will be more progressive, meaning that lower and middle income persons will pay a smaller proportion of the overall tax burden than they do now. The standard test of progressivity is what economists call the “Suits Index.” According to Maine Revenue Services, the Suits Index increases under LD 1495. Even after any new sales taxes are included, the overall tax system is still more progressive than now.
“Tax reform accomplishes a number of goals, and one of those goals is to reduce the tax burden on all income groups fairly,” said Piotti. “The tax reform plan takes the overall $57.1 million in exported tax burden and spreads it out fairly, giving the largest percentage benefits to low and middle income persons who need the break most. That’s progressive tax reform and should be hailed by the Greens as a positive step forward.”
The Maine Green Independent Party also cited an incorrect example of a person making $250,000 and a person making $15,000 paying the same 6.5 percent rate. In reality, the effective income tax rate (after accounting for all tax credits) for a person making $250,000 is 6.5 percent, resulting in a tax bill of $16,250. A person making $15,000 would have an effective tax rate of .16 percent, resulting in an income tax bill of $25.
“What needs to be understood is the power of the new tax credits, which create a more progressive system and lower the tax burden on Maine families,” said Piotti. “Very few people in Maine will actually end up paying 6.5 percent, and those who do will be at a very high income level. The new system will benefit Maine in a number of other ways, including increased economic activity and job growth, and it does so in way that actually helps low income Mainers. As with all tax policy, one must understand the details of the reforms before making claims about its effects.”
More information on the new credit system and a tax calculator showing how the new system will affect individual taxpayers is located at: Maine Tax Reform. Information on the new credit system: The New Credit System and Tax reform myths vs. facts
Contact:
House Majority Leader John Piotti, 287-1430
Kyle Leighton, communications director, 287-1433