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Battle Heats up over Maine's Tax Reform Law
05/13/2010   Reported By: Anne Mostue

On June 8th, Mainers will vote on a ballot question that asks whether to repeal a new law that aims to lower the state income tax by expanding the sales tax. Proponents say nearly all residents would see a drop in their income tax and that visitors and tourists would pay a fairer share of taxes. Opponents say the idea of exporting taxes to tourists is more hope than reality.

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The race is on to convince voters to check "Yes" or "No" on Question 1, and, as is often the case with ballot referendum questions, its language is confusing.

The question asks: "Do you want to reject the new law that lowers Maine's income tax and replaces that revenue by making changes to the sales tax?" A No vote would keep the law. A Yes vote would repeal it.

The so-called tax reform bill was signed into law by Governor John Baldacci last June, but opponents gathered enough signatures for a so-called people's veto referendum, and it was suspended from being enacted. On June 8th voters will decide what to do with it.

"Overall too many flaws have been discovered in this tax reform bill to allow it to become law," says Scott Moody, chief economist at the conservative think tank the Maine Heritage Policy Center. He's opposed to the law and wants voters to vote Yes on question1.

"Rather than subject Maine taxpayers -- both individuals and businesses -- to the pains of learning and adjusting to a radically altered tax code, with few real economic benefits, it would be best to simply scrap it and start over," Moody says.

Moody says the lower income tax rate will not offset new sales taxes, and that any new taxes on anything is a bad idea in a sour economy. "Maine needs lower overall taxes, not gimmicky shift of one tax onto another."

The law changes the current tax structure in a number of ways:

* It lowers the top income tax rate from 8.5 percent to 6.5 percent for those with incomes up to $250,000;

* Any income above $250,000 will be taxed at 6.85 percent instead of 8.5 percent;

* It broadens the sales tax base. The regular sales tax will still be 5 percent, but it will be expanded to include more goods and services, such as labor for auto repairs, and movie, theater, and concert tickets. The meals and lodging tax will increase from 7 percent to 8.5 percent, and some other special taxes, such as taxes on automobile rentals, will also increase;

* The law increases funding for tourism marketing;

* And finally, it's revenue-neutral, meaning it doesn't generate increased revenue for the state.

The Maine State Planning Office says nine out of 10 Maine residents will pay less in taxes if the law is allowed to stand, with $150 being the average tax break. Among those making less than $32,000 a year, 97 percent will pay less in taxes, the office says. The Planning Office says the reduction in income taxes will exceed what will be paid in new sales taxes.

"Mainers have already lost $50 million dollars in burden reduction by putting this off for a year, so it's time we sustain the law and at least get that burden reduction to folks next year," says state Sen. Joe Perry, a Bangor Democrat and major proponent of tax reform.

Perry says Mainers can't afford to keep putting off the enactment of the law. "Unfortunately this was a Democratic bill. The Republican members of the tax committee offered no alternative. Their report was simply ought not to pass," he says. "There's a lot of talk about needing to reduce taxes, but their report was nothing, so we had to go at it alone. And we did, we passed a bill that lowers the rate. It's time we did it. It's been 40 years since we've modernized our tax code."

The Maine State Chamber of Commerce supports the tax reform bill but the Maine Merchants Association is opposed. Representatives of the restaurant and lodging industries, such as the Maine Restaurant Association, say raising the meals and lodging tax will put off tourists, while also hitting Mainers in the wallet.

Maine Revenue Services has created an on-line calculator for residents to see how tax reform will affect their income. To check it out, click here.


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