LD 1495: Frankenstein Tax Reform

Moody's Table 1 shows the new law resulting in a tax cut under the new law at all income levels.
Sure, it's typical Democrat sappiness to make the credit refundable so that it becomes a small (up to $70) welfare check for some people (like my mother in law, perhaps).
And sure, we strangle the government types would rather see the new tax law be revenue negative.

But it's very hard to look at Table 1 and say, this is a bad thing for Maine people.

Well sure. It would have been preferable to just reduce the income tax. We'd all want that. But this bill helps business, reduces overall spending, but increases some sales taxes in order to avoid even deeper cuts - some of which we would like to see, but hey, this is the best we've seen in a long time. When was the last time that state spending actually decreased? When was the last time the income tax was reduced? Never?? And the Republican Party wants to repeal this?? Are we nuts? Jerking knees are not pretty.

A one half of a percent decrease in the top bracket, and this is a tax cut?

I can hear, "We cut the budget," but it wasn't because the dems wanted to.

No money, no spending. If the dems actually took steps to cut the budget by some $500 million, as they were advised to do by the Brookings Report two years ago, this year's problems wouldn't have been a forced event, but a responsible one.

In fact, the budget still has a $400 to $600 million hole that needs to be filled next year. Obama-bucks bailed out the unions and the administration this year.

NH Government lives on $750 million less than Maine's, why can't we?

A real income tax cut would have been a straight cut to 6.5% accross the board with no gimmickery to boost it back up to 8% for the majority of the taxpayers.

And no new taxes on services etc...Selling this has proven to be a monumental task for the dems.

They have pulled out all of the PR tricks, and fooled plenty on the middle, but not on the right. I do not include Steven Moore or Peter Mills. LD1 was hailed as a 'landmark', then it failed, and so will this.

The bill does not address spending. The Brookings Institute report, Charting Maine's Future, recommended that the income tax be reduced and proposed to find the funds for that, among other things, by establishing a Government Efficiency Commission of "12 independent-minded citizens" with the help of OPEGA. No Commission was ever established, Indeed, the Democrats toyed with the idea of abolishing OPEGA.

"Efficiency, we don't need no stinkin' efficiency."

The Dems didn't cut taxes. They found a group even less able to resist. The tourists are picking up some of the burden. I figure I'll see abou an $80 reduction. Thanks a lot. That will be eaten up by failure to index the household credit and in short order and I'll be back where I started.

The Dems also didn't reduce the budget to match revenue. All they did was kcick the can down the road so that the real problem won't show up until later.

And we should be thankful for this?

Thanks you sir, may I have another.

Don't believe the $80 million 'shift to tourists'. The first estimate made for LD 1088 was only $75 million; it was dropped to $53 million on June 1, 2009. Then LD 1495 came out and the 'estimate' topped $80 million even with the exclusion of ski tickets and greens fees taxes (and other things) that were in LD 1088. It don't figure.

The dems and their appologists may get that by Peter Mills and Steve Moore, but not me or Scott Moody for that matter.

So why not direct our efforts to making the efficiency commission a reality, instead of working to overturn what is truly a tax cut for the vast majority of Maine people?

"what is truly a tax cut for the vast majority of Maine people?"
No no no - it is not a tax cut for the vast majority. Some will break even. Some, particularly the very wealthy will hit the jackpot. Many will pay more - best case scenario - 86,000 families will pay more. Sorry, this is a scam of epic proportions.
In the Middle - Knee jerk reaction? - Hardly. Many Rs hung on for a long time to the idea of "tax reform." In the end, it was just impossible to support a reform bill with a primary goal of more and steadier revenues to Augusta at the expense of those least able to afford it and the tourism industry.
Think of the past broken promises - 2003 - Dirigo, 2005 - LD1, 2007 - School Consolidation, 2009 - yup, tax reform. Fool me once - shame on you. Fool me 4 (or more) times - we must be in Maine.

Rep McKane
I need examples of the 86,000 people who will pay more income tax.
Note that every entry in Scott Moody's table showed a tax cut.
That covered married, two kids.
I know there are people who will pay more instead of less.
Let me see some examples.

Anyone who has a large amount of itemized deductions, anyone who doesn't file income tax. The 86,000 number comes from Maine Revenue Services and that number is only if everything goes according to plan. Otherwise, it will be much larger. How many times do you have to be lied to before you become just a little bit skeptical? Again - the sole purpose of this law is to bring more and steadier revenues to the state.

That table doesn't include people who itemize deductions. Why do you think they disallowed the mortgage interest deduction? Not because it would lower income taxes for anyone.

Mainemom - not sure your point - but go ahead and belive them that this time it is different. Tax relief for all Maine citizens! a better business climate! 53.9 million in "exported" taxes that Maine people won't have to pay! Sure.

Do I strike you as a particularly fluff headed individual?
All I asked was for you to show me an example of the folks who will pay more income tax under the new law.
I know they exist.

But not to worry - I have done the work myself.
Let's look at a married couple filing jointly whose AGI is $80,000.
Give them two kids.

First, assume they don't have enough items to make it worth itemizing.
Under the old law, they paid 3690
Under the new law, they would pay 3375

Now assume they have lots of items to deduct, enough to add up to 24,100. Recall that state taxes were never allowed in Maine itemized deductions.
So the deductions are property tax, excise tax, medical expense, and /or charitable contributions.
Under the old law, they paid 2449
Under the new law, they would pay 2450, an increase of $1.
More deductions with same income, more of a tax increase.

This is the type of taxpayer who will pay more.

Note that this couple with all the deductions still pays considerably less than the couple making the same money, but lacking the deductions, under either the new law or the old law.

The state reduced the amount paid back to the towns for land in tree growth while still requiring the towns to give the tax break to the landowners . It also reduced the homestead exemption rebate and the municipal revenue sharing . The amount paid to schools was reduced by $ 27 million , but replaced with the same amount of Obama bucks that won't be there next year . Most of our towns have made all the cuts they can so they have to raise property taxes to fill the gaps . The state can say taxes are cut , but if the money comes out of my right pocket instead of my left pocket it is still a loss to me . Little of what this state does regarding taxes is as it seems .

Many Mainers will have income tax "cuts" that do not equal the new sales taxes they will have to pay. And we all be paying more in property taxes because of the aforementioned budget shifts, And don't forget the new Dirigo tax they passed this session, too. Oh yes, and the budget icluded many new fee hikes
Mainemom - Fluff headed? No. I just don't understand how anyone who is objective and understands these tax changes can support it unless you are concerned about a "steadier revenue stream" to Augusta.

It may decrease our taxes a small amount? So what! The magnitude of the total taxes that we pay in Maine is still much too high. We can fight over the token decrease, but until they do something to halve our taxes, it doesn't matter.

All of which says the focus of opposition efforts ought to be on convincing Maine voters that Maine's future prosperity depends on shrinking the scope of what state government does.

And this bill does exactly the opposite. It increases both the size and the scope of government intrusion into the private sector. How can you be for it except that apparently it benefits you personally in some small way?

Senator Trahan - Tax Reform or Money Grab?

"It was with astonishment that I read the op-ed piece by Sen. Peter Mills titled, “Maine needs tax reform to lure new businesses.”
The piece revisited Maine’s manufacturing history, decline and the rise of high taxes and big government. With that backdrop, Mills urged people not to sign the citizen petition to repeal the recently enacted tax reform initiative, LD 1495."

http://kennebecjournal.mainetoday.com/view/columns/6579616.html

Read the column at breakfast. Solid work and markedly more substantive than Sen. Mills' piece. When it comes to hard facts, and hard numbers Sen. Trahan does not skim along the surface.

What astonished me was Sen. Mills' assertion that the veto drive was the work of "special interests." Can he be referring to the Republican Party, of which he, his father and his grandfather were members? Is he still affiliated with this special interest?

Trahan as usual does an excellent job making his case.
When it comes to suspicion about what future legislature might do, I think a further expansion of the sales tax is more likely than meddling with the income tax. A bad thing either way, and possibly sufficient reason to support the people's veto.

But I don't think fairness is a legit standard by which to judge any tax changes, because what seems fair to some may seem unfair to others.

I think it's perfectly fair that the top taxpayers get a noticeable tax cut under the new law. They pay the most.

Under the prior law, I don't think it's fair that a married couple, two kids, with an AGI of $80,000, and who rent a home while saving to buy a house, pay hundreds or even thousands more in income tax than the neighbor with identical demogrphics, but who bought a home on little to no down payment and pays enormous mortgage interest. Will I fall on the sword to defend the different tax treatment of the two families under prior law? No.

Is it fair that Mom and Pop Corner Store, struggling to make a profit, is a tax collector for the state of Maine, while Ernie Electrician around the corner is not? No, it's not fair, but it's what we're used to. Meanwhile, Ernie works out of his house, so he even gets to deduct some of his household expenses as a business write-off.

But, you say, what about the elderly and other low income households who pay no income tax under the prior law, but who will be stuck paying the new sales taxes? Well, the ones who don't normally file a return should start doing so in order to collect the refundable tax credit that's meant to offset the increased sales tax.

Is the new law ideal? No. Is it what I would enact if it were up to me alone? No. Is it fair? No tax law is fair to every taxpayer. Is it less fair than the prior law? I don't see how.

Will I sign the people's veto out of fear of what a future legislature might do? I'll have to think some more on that one.

Mainemom - Nothing wrong with high income taxpayers getting some of their money back. The problem is that their savings are proportionately so much higher than the other tax payers. The over $300,000 earners are getting 4 times their proportional share.

And I love your answer to those low income earners and elderly who don’t file an income tax return. “the ones who don't normally file a return should start doing so” That’s kind of like saying those who want property tax relief should start applying for the circuit breaker program. Yes they should, but half of those eligible don’t. Why? A variety of reasons but the biggest is that they feel they are applying for state assistance. The state budget actually counts on people NOT applying. Your credits have a similar feel. The state takes your money then gives it back as it sees fit.

You seem to forget that we are spending too much in Augusta and that this bill is not about tax relief for anyone. It is about more and steadier tax revenues to Augusta in bad times.

To you, this law is all about “fairness.” To me it is about common sense. Here are some common sense reasons to sign the petition:

Ax the Tax
*The real purpose is to bring more and steadier revenues to state government – not "tax relief"
*In order to sell the idea, they claimed tax relief to families and businesses by "exporting" taxes to tourists
*We’ve heard other grand promises before – Dirigo, LD1, School Consolidation – All of them made the situation they were addressing worse – this is no exception
*The $53.9 million for "exported" taxes is just a wild guess
*Whatever the exported amount is, it is coming out of the tourism industry
*Maine people enjoy those activities, too.
*Maine’s meal tax was already high
*Many small businesses will now become tax collectors for the state – programming cash registers, charging the tax, keeping track, paying the state with accompanying forms on a monthly or quarterly basis.
*The new tax on car repairs will be particularly burdensome to poorer Mainers and also to auto mechanics
*Like the others, this one is complicated and hard to understand making it impossible to track progress
*Loss of itemized deductions replaced with "credits." And they don’t keep up with the loss of deductions.
*These "credits" depend on sales tax money. If the money doesn’t come in as expected, there won’t be as much money for these credits
*These changes put Maine in a place no other state is – far away from the federal code.
*Best case scenario – 86,000 Maine families will be paying more in taxes
*3.2% of the highest-level income earners are getting the biggest cuts – they get 70% of the $53.9 million, 2/3rds of 1% of the highest earners get 52% of the tax relief.
*When the cuts that the highest level earners are taken out of the equation, the "savings" spread out among the rest of Mainers is within the margin of error
*Indexing will be removed for two years. Because of this, in three years most Mainers will see income tax increases.
*Will hit the poor and elderly the hardest

The new tax on car repairs will be particularly burdensome to poorer Mainers and also to auto mechanics

Like I said before, I am a heavy equipment/truck mechanic by trade, and I am shocked at the number of people who have asked me if I do work on the side, for cash.

Never believe a politician when they promise you relief. Glenn Aho and the Auburn City council is bragging that taxes went done for the second year in a row. I could never get a handle on this magic math. I paid more in property tax in 2007 then I did in 2006. I paid more in 2008 then I did in 2007. I also expect to pay more in 2009 then I did in 2008. Where is the tax decrease?

I also reregistered my 11 year old car yesterday. Guess what, I paid more this year then I did last year. PLEASE, I do not want anymore relief!!

Rep McKane

I do not forget that we are spending too much in Augusta. I have repeated on this thread and others that we must put our energies into convincing Maine voters of the need to cut the scope of state government.
By scope I mean the menu of things state government does for us (to us?)

I'm told this law will get us no closer to that objective, and I agree. But neither will reverting to the status quo. Democrats are not going to write a law that lowers state tax revenues, ever. And in the real world, Republicans can't do it, either, unless they simultaneously succeed in cutting the scope of state government.
Oh, and they'd have to do so without pushing the burden onto the municipalities, because we know what happens then.

You said,
To you (meaning me), this law is all about “fairness.”

But I said,
I don't think fairness is a legit standard by which to judge any tax changes, because what seems fair to some may seem unfair to others.
To illustrate that, I proceeded to give examples where the prior law was unfair.

Now for the rich. You said:
3.2% of the highest-level income earners are getting the biggest cuts – they get 70% of the $53.9 million, 2/3rds of 1% of the highest earners get 52% of the tax relief.

This sounds like the same argument the progressives make against the Bush tax cuts.

Let's say you managed to pass a law that lowered the top marginal rate from 8.5% to 6.85% and left all else the same as the law in effect in 2008. Wouldn't the top tax payers get most of the relief in terms of dollars?

To avoid that, would you add a surcharge on income that exceeds $300,000?

Again, LD 1495 is not a perfect law, far from it.
It's not what I'd get behind if I were in the legislature.
I'm not convinced it will benefit the state, but I'm not convinced it will do more harm than good, either.

Mainemom - I and others have given more than enough solid arguments to support the peoples veto. I cannot see any arguments in favor that stand up to the straight face test. You (and Senator Mills) are firmly entrenched in favor of what appears to almost everyone as a scam. If you truly believe that this new law is revenue neutral, that the projections from MRS are trustworthy, that future legislatures won't raise the income tax right back up and expand and raise the sales tax further and that this isn't about more and steadier revenues to the state, good luck.

But I don't think fairness is a legit standard by which to judge any tax changes, because what seems fair to some may seem unfair to others.

How much does it cost producers when government collects a dollar of tax revenue? $1.25? $1.50? $2.00? The answer depends on the burdens created by the particular tax.

I agree with Mainemom. All taxes are "unfair." The real question is the degree to which they are inefficient - that is, the extent to which they impose deadweight costs on society.

I'm not convinced that the tax reform as a whole will create supply-side effects, but the reduction in the highest marginal rate for income tax shows great promise. For what little it's worth, arguments about "fairness" and "common sense" aren't going change my mind about that.

MAINE VOICES

This 'tax reform' just doesn't cut it
When the next budget comes around, there will be no federal infusion and the bag of accounting tricks will be empty.

JOHN FRARY

July 12, 2009

FARMINGTON — A Wall Street Journal editorialist was so stunned to hear that a Democratic legislature passed a bill reducing income taxes on "the rich" that he hailed it as "a miracle."

J. Dwight,..., declares it a "mirage." Charlie Webster..., immediately detected a scam and set in motion a people's veto drive to abort the new tax "reform."

Republicans have long favored an income tax cut and there is an argument to be made for broadening the sales tax to stabilize revenue. So understanding the opposition to this bill requires some historical perspective.

http://pressherald.mainetoday.com/story.php?id=267440&ac=PHedi

"You (and Senator Mills) are firmly entrenched in favor of what appears to almost everyone as a scam. If you truly believe that this new law is revenue neutral, that the projections from MRS are trustworthy, that future legislatures won't raise the income tax right back up and expand and raise the sales tax further and that this isn't about more and steadier revenues to the state, good luck."

But did I say ANY of that?
I have said it's not the ideal law.
I have said it's not clear the outcome wil be revenue neutral.
I have said the acts of a future legislature are uncertain and reason for suspicion.
And I have never disputed that the people who wrote this were all about steadier revenues for the state.

"Steadier Revenues" translation: "We have wiped out another source of expected revenue and are seeking a way to replace it."

This is just another example of the Maine legislature over-taxing and over-regulating the businesses and people of the state of Maine.

"the reduction in the highest marginal rate for income tax shows great promise."

If, among other things, we weren't eliminating itemized deductions and expanding the sales tax, I'd be right there with ya.