(D-Houlton)
You may have looked at your pay stub recently and noticed an extra $26 deposited. The extra money was due to an income tax break as part of the federal economic recovery program. Instead of sending out checks to eligible taxpayers, the federal government is putting the funds right into the pockets of Americans. Even though it was just a small amount of cash, I suspect most people were excited to see a little extra money – kind of like finding a few dollars in a coat pocket you haven’t worn in a while. As a state lawmaker, though, the part I find worrisome about the federal recovery payments is that they’re not permanent. In order for Maine to undergo sustainable economic growth, we need to put more money back in the pockets of our people and overhaul our tax code. We are currently considering a proposal at the Statehouse to do just that.
Right now, Maine people pay income taxes at a rate of 8.5 percent – that’s almost 10 cents on every dollar we earn. I’ve been to briefings on the state budget, and serving on the Business, Research and Economic Development Committee, I have a pretty good idea about where that money goes once it leaves your paycheck. But even with that knowledge, 8.5 percent seems like a tremendous burden for any of us to be bearing, especially in an economy like this. Under the proposal before the Legislature, the rate would go down to 6.5 percent.
Lower income taxes benefit Mainers in a number of ways. Certainly the lower income tax rate helps almost all individuals but, remember, over 90 percent of Maine’s small businesses file at the individual income tax rate. This proposal will help them, as well as dropping the capital gains rate from 8.5 to 6.5 percent. According to the Maine Economic Growth Council, Maine does a good job with new startups, and this bill will have an immediate impact on our ability to attract new businesses to the state and will make us more competitive.
We’re looking at all of this because Maine’s tax code tends to rely on two major sources of revenue, income and sales – with 30 percent of our sales tax revenue coming from the sale of cars and building materials. When the economy slumps, these are the areas hit the hardest. For all the talk about Maine and taxes, the fact that we’re not paying taxes on these items is pretty telling about our state economy. Other states tack on sales tax to as many as 168 items. Maine currently only taxes 25 different goods and services. Comparatively, Wyoming, which has the second lowest tax burden in the country, taxes up to 58 items.
To pay for this proposal, we will be expanding the sales tax base to items that are predominantly paid by out-of-staters, and modestly increasing the meals and lodging tax from 7 percent to 8.5 percent. We will also increase the real estate transfer fee by a small amount, from .44 to 1 percent, on the amount over $500,000 of the purchase price. The amount up to $500,000 will remain the same. We are focusing on areas where tourists and part-time residents aren’t paying their fair share, and giving money back to Mainers only.
The bottom line for Maine out of this legislation is that the tax burden on Maine people will be reduced by $75 million a year. It is also expected to aid small businesses because it reduces taxes and capital gains paid by most small businesses and promote new and existing small business growth. The best feature, though, is that it encourages long-term personal economic security, and yields more benefits that just the temporary extra few dollars in a paycheck.
There are many other pieces to this proposal, feel free to call me at home at 532-7526, or e-mail me at rccleary@ainop.com.
