What Tax Reform Means for Maine People
This article was written by Kurt Wise from the Maine
Center for Economic Policy (MECEP). MECEP is a small, non-profit organization
that works to create broadly shared prosperity here in Maine. MECEP’s work is
particularly focused on ensuring the economic well-being of low and moderate
income Mainers.
MECEP followed the tax reform legislation closely
during this legislative session. They also worked
with MAIN and MEJP as we focused our efforts on
separate legislation to increase the state Earned
Income Tax Credit (EITC) and make it refundable.
A scaled-back version of the EITC proposal was
included in the final tax reform package. MAIN,
MEJP and MECEP will continue to work to
increase the value of the state EITC in future
legislative sessions.
In May, the Governor signed into law a bill
that will change the way state government
collects taxes. The majority of legislators
voted to make these changes because the old
system was unreliable. When the economy
was good Maine collected enough taxes
to meet its needs, but when the economy
was bad, tax collections would fall sharply
leaving it without enough money. This
lack of revenues during bad times often
meant deep budget cuts in critical programs
like MaineCare, along with cuts to other
education and human services programs.
The new system will help fix this problem
by increasing Maine’s reliance on revenue
sources that are more dependable in tough
times. It also will collect more taxes from
out-of-state visitors, which will reduce
taxes for Maine residents. This new system
will reduce the total amount of taxes (both
income and sales taxes combined) for close
to 90% of all Maine households.
Over 95% of households with income below
$45,000 a year will see their total taxes decline
through a new “Household Credit”. This
credit will lower most people’s income taxes
enough that it will more than offset the added
sales taxes people will now pay. If a person’s
Household Credit is larger than their income
tax bill, that person will pay no income taxes
and will receive a check for part of the credit.
The annual amount of the refundable credit
can be up to $70 for couples and $50 for an
individual. The value of each tax filer’s credit
will be determined automatically by Maine
Revenue Services when that person files his or
her taxes.
Here are some of the key parts of the new tax law. It will:
- Reduce the highest income tax rate
(on incomes greater than $39,000 for
couples or $19,500 for single people)
from 8.5% to 6.5%.
- Create an additional surtax on higher
income people. This amounts to
0.35% (added on top of the 6.5%) on
all taxable income above $250,000.
- Increase taxes on meals, hotel rooms,
and rental cars. These taxes will help
collect more taxes from visitors to
Maine.
- Broaden the sales tax to include
some new services and items, such
as certain amusements, repair and
maintenance (including car repairs),
automobile leasing and most candy.
- Make the state Earned Income Tax
Credit (EITC) partially “refundable”.
The state EITC reduces the state
income taxes of eligible lower income
households. This new “refundability”
means that once the EITC has reduced
a household’s tax bill to zero, the
family will now get some or all of the
remaining value of the credit. This should deliver an additional $50-75
of direct support to at least 15,000 of
Maine’s lowest wage-earning families.
- Place the application for the Property
Tax and Rent Refund Program (known
as the “Circuit Breaker” program)
directly on the state income tax
forms. This will make it easier for
tens of thousands of moderate and
lower income Mainers to apply for
this refund. Eligible households will
receive, on average, around $300 in
rent or property tax relief.
Combined, these changes add up to an overall
decrease in taxes for almost all lower and
moderate income Maine households. Ninetyfive
percent of households with income below
$45,000 will see an additional $50-100 in their
pockets after income tax decreases have offset
the household’s additional sales tax expenses.
Any increase for the other five percent of these
households will average about $30 more per
year. Changes to the EITC and Circuit Breaker
programs, together, can provide another $300-
400 of additional support that was either not
available before or was harder to access.
Conclusion
Some have criticized this new reform package
saying it will cost people more in taxes,
especially people with lower income. When we
at the Maine Center for Economic Policy do
the math, however, we find this is not true.
Overall, the reforms will save money for most
Mainers with income below $45,000. And in
fact, under the new system, Maine households
with income over $60,000 a year now will pay
a larger percentage of all income and sales
taxes collected from Mainers. Importantly, the
tax reforms also will make Maine’s state
budget less vulnerable to ups and downs in the
economy. This will help limit the danger of
future cuts to essential public programs. We at
the Maine Center for Economic Policy believe
that the tax reform package - while not perfect -
deserves the support of Maine people.
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