I believe it is our responsibility to lower the overall tax burden of Maine residents and adopt a responsible fiscal policy that protects our elderly and our businesses, as well as our neediest citizens. It is our duty to maintain the Maine quality of life and balance jobs and the economic growth with responsible and reasonable environmental practices. Achieving our responsibilities and duties will ensure that our children and their children can continue to live and work in Maine-- a state of opportunity and beauty.
VOTE YES ON QUESTION ONE TO PREVENT TAX INCREASES
By Rep Kathy Chase, Wells
Question 1 on the Maine State Ballot on June 8th proposes to repeal the law that would expand sales tax to more than 102 new items and services, increase our meals and lodging taxes by more than 20%, increase tax on candy by 70%, increase car rental taxes by 25% as well as add a new 5% tax on non-business interstate and international telecommunication. It proposes to use most of the newly raised taxes to “buy down” Maine income taxes for some residents. In other words, this bill proposes to take money out of several of your taxable pockets and put it into another of your taxable pockets—if you are one of the lucky Mainers to actually see a reduction in your state income tax-- and call it a “tax reform” benefit. It is promoted as “revenue neutral” meaning that the same dollar amount in increased sales taxes will be the same dollar amount that is used to reduce your Maine income tax obligation.
Even if it were that simple, and it actually was an equal swap in taxes, it is a costly, confusing and complicated process that gains nothing in true, overall tax reduction. Again, paying more in one tax category so you can buy down a tax rate in another category doesn’t change the end result.
However, proponents of this law are promising reductions in taxes. Common sense will tell you if the same amount of tax is being levied as spent and yet there are reductions promised for some people, that can only happen if a group of people are either paying more or are benefiting less than they were before this law. That is exactly what occurs.
The new taxes –sales and income-- effect different taxpayers in different ways. The gain in dollars created by “losers” versus winners in this swapping of taxes are what proponents of this tax and shift law are declaring as a “reduction” in taxes to some Maine people.
Those who will see the biggest benefit from the income tax reduction will be those making more than $350,000 a year. Currently Maine has five marginal income tax rates 0%, 2%, 4.5%, 7% and a high of 8.5%. The top rate of 8.5% is only applied to income of more than $20,150 for singles, $30,250 for married filing separate, and $40,350 for married filing jointly—all income under those thresholds are taxed at the variable lower rates at different levels of income. What that means is that not all income falls under one rate, but a multiple of rates-- unless of course, your rate is 0%. There is an averaging of the multiple rates called the effective rate, based on calculating how much is paid under each of the different rates and figuring the end actual rate paid. The average income in Maine is under $40,000 and not much of that income falls in the top rate of 8.5%. The Maine Revenue Services reports that more than 75% of Mainers have an effective rate of 3% or less under our current system. The new tax law that Question 1 is asking to repeal, will put a flat tax of 6.5% on all income. It will eliminate the lower tax brackets of 0%, 2%, 4.5% along with the 7% and the 8.5%. As most Mainers already pay less in their effective tax than the planned 6.5% flat tax proposed in the new tax law, they won’t see the big benefit. It is the higher incomes that benefit the most from the new tax and shift law: those with taxable income above the 8.5% current bracket.
It is why, according to MRS reports, a little more than 4500 taxpayers, with incomes over $317,000 will receive about 60% of the total planned reductions that we are all paying for with the proposed higher sales taxes. This small, wealthier group will get about a $6100 tax cut each, while all other taxpayers receive about a $27 reduction.
Who pays for these proposed reductions that benefit the wealthier the most? First, the 86,000 Maine taxpayers who will see an increase in Maine income taxes as a result of this new tax law, mostly due to the elimination of tax deductions that are replaced by capped and phased out tax credits. These would be Maine taxpayers with high itemized deductions, such as medical deductions.
Non-residents and visitors to Maine will pay about 65% of the increased lodging tax and about 20% of the increased meals tax (Mainers will pay the rest of the meals and lodging tax increases) . However, non-residents will be prohibited from getting any of the tax credits on their Maine taxable income. MRS reports estimate that more than $15 million of additional income tax will be collected from non residents. However, the law will likely be challenged as unconstitutional under the Privileges and Immunities Clause of the US constitution, which prohibits a state from imposing higher tax rates or taxes on nonresidents than it imposes on residents. So that benefit may not only be lost, but cost Maine in court challenges.
Unfortunately, the poor and elderly are a group who will be contributing about $5.7 million in additional tax dollars. There are about 300,000 Mainers whose incomes are too low to file a tax return and many of our Maine elderly fall into this category. They will still be paying for the sales tax increases yet not receive a benefit on the income tax side as they make too little to file. While there is a small refundable credit available to them in this new tax law, they have to file a return to get it. MRS estimates that 50% of those who do not file will not file to receive their $50-$70 refunds. That will be a tax increase of nearly $6 million dollars to this group who can least afford it.
The group of the majority of Mainers who were proposed to receive a $27 tax reduction (4 paragraphs back) will actually see that reduction lost or even have their taxes increased by 2014. While inflation adjustments are available in our current law, inflation adjustments are eliminated in the new tax law until 2014. That will cost Maine taxpayers an estimated $25-30 million additional tax dollars over the next few years, if the Question 1 Repeal fails, and the new tax law is implemented.
Not only does the new tax law fail in the proposed reductions in income tax, it increases our tax burden by expanding and increasing sales tax. As stated earlier the new taxes –income and sales- affect different taxpayers differently. The income tax changes benefit those with higher incomes the most. The sales tax expansion impacts the poor and the elderly the most. While ski lift tickets, golf fees and tennis fees were exempted from the sales tax expansion in the new tax law, here is a partial list of items/services that are targeted to be taxed: auto repair labor; bicycle repair labor; dry cleaning; wash, dry, folding laundry; car washing and vacuuming; jewelry, camera, gun, musical instrument, electronic equipment repair, lawn and garden equipment repair, computer hardware repair, office equipment repair, shoe and furniture repair; movie tickets; Amusement and Water park tickets; miniature golf fees; golf driving range fees hired Bands or DJ’s for events, hired clowns, jugglers and ventriloquists for kids parties; diaper services; Pet exercising, sitting, grooming and boarding fees; art framing; house cleaning; rental of storage units; leasing of office equipment; service contracts and rental of safe deposit boxes—plus many more. The majority of these expanded services will be paid for by Mainers—not out of state visitors. Auto repair labor will especially hit the poor and older residents who cannot afford new vehicles.
Although increased meals and lodging taxes will be shared with non-resident visitors, many Mainers go out to eat and travel within our beautiful state. The increased meals and lodging taxes proposed have the potential of negatively effecting our number one Maine industry—tourism. Proponents of the new tax law and “NO on 1” will claim the more than 20% increase in meals and lodging will not affect our tourist industry, but in any uncertain economy taking a chance on our number one Maine industry is downright foolish.
Small business owners who have not had to collect sales taxes in the past will be forced to do so in this law with the expansion to more than 100 new taxable items and services. Time and the cost to set their businesses up to collect the taxes and process the filings are an increased expense to businesses already impacted with the poor economy. No allowance was made for the businesses who will now become Maine’s newest, mandated, free tax collectors. Yet Maine Revenue Services will be adding 11 new revenue agents/auditors at a cost of more than $1.5 million a annually to Maine taxpayers as a result of this law. Not only will the businesses have to pay for their own tax expansion costs, but –along with the rest of Maine’s taxpayers—will be expected to pay additional tax dollars for the continued funding of $1.5 million a year for the 11 new Maine Revenue Service employees.
Question 1 to repeal the new tax law changes has caused a lot of confusion as to what a “YES” vote means. Some of the confusion has been deliberate. Recent TV ads by Proponents for “NO” on 1, stated that the repeal of Question 1 is a “plan to raise your income tax by 30%”. That is NOT true. It is a false statement. Senator Joe Perry, (D), Bangor, also a Proponent of “NO” on 1 and a co-sponsor of the tax bill acknowledged it was a false statement in a recent May 26th tax debate in Ellsworth, for the League of Women Voters. The new Tax and Shift law was never implemented. It is not in effect right now. So any statements made that tell you your income tax will go up if this law is repealed are not true. If this law is repealed—as it should be— you will see no difference in what you are currently paying in Maine income tax. What is in effect now will remain the same.
The petition to repeal the tax law was signed by more than 55,000 concerned, good Maine citizens.“Those people’s veto initiatives” as referred to by Rep Ed Legg from Kennebunk, in an OP ED in last week’s York County Coast Star, are a valid, legal right for Maine people. If legislators listened more to what their constituents wanted, there wouldn’t be a need for them.
The wording of Question 1 on the State ballot must be the same as the petition that the 55,000+ people signed and default to the positive—meaning a “YES” vote is what will pass what the petitioners wanted. As a result it, is a case of “YES” means no to the law. “YES” means to get rid of the law. Confusing it is and unfortunately Maine people will pay for that confusion if this bad bill is not repealed.
If you do not want to expand to more than 100 new sales tax items and services and see increase in some sales taxes for all of us, then you must vote “YES” to reject the new taxes and repeal the law. So, it is “YES” to repeal. I urge all Mainers to vote “YES” on Question 1.
I served on the Taxation Committee for the last four years and Tax Reform was an ongoing, deeply discussed and debated concept. Tax Reform based on the tax and shift of sales tax increases for income tax reductions is not an overall tax reduction, and ends up being a tax and shaft for too many Mainers.& Many realize—as I do—that true tax reduction doesn’t come from tax reform but from spending reform. Otherwise, it is a shell game.
VOTE YES on Question 1.
Representative Kathy Chase
Taxation Committee Lead
Wells Dist #147
Rep. Kathy Chase Named to National Committee on Budgets and Revenue
August 26, 2009
AUGUSTA – Maine House Speaker Hannah Pingree has named State Rep. Kathy Chase to an influential committee on government finances at the National Conference of State Legislatures (NCSL). The two-year appointment to the Budgets and Revenue Committee, which takes effect immediately, will bring Rep. Chase into contact with state legislators from around the nation to share approaches and solutions to financial problems.
“The NCSL is an outstanding and very effective organization, and I’m honored by this appointment,” said Rep. Chase (R-Wells), a second-term legislator. “The Budgets and Revenue Committee provides a forum for legislators to share information. In this era of revenue shortfalls and very tight state budgets, I’m looking forward to discussing financial strategies with legislators from other states.”
The NCSL’s Budgets and Revenue Committee is one of 11 standing committees. It is responsible for protecting the states’ interests in federal decisions regarding fiscal matters, including annual action on the federal budget. It also examines federal and state policies with fiscal implications, including: funding for services and programs; budget processes; tax and revenue systems; legislative oversight; unfunded mandates; and state-local fiscal relations.
Rep. Chase said the NCSL appointment will fit well with her legislative experience. She serves as the ranking Republican on the Legislature’s Taxation Committee, which has jurisdiction over the Bureau of Revenue Services; property valuation and assessment; municipal revenue sharing; and taxes.
The NCSL, based in Denver, is a bipartisan organization that serves the legislators and staffs of the nation's 50 states, its commonwealths and territories. It provides research, technical assistance and opportunities for policymakers to exchange ideas on the most pressing state issues. It advocates for the interests of state governments before Congress and federal agencies.