On January 9, 2014, Maine’s Republican Governor Paul LePage released his Biennial Budget for the State of Maine for fiscal years 2016 and 2017. The Budget proposes sweeping changes to Maine’s tax code and would dramatically alter they way local government is funded.
One of the most dramatic changes in the Budget is the proposal to reduce Maine’s income tax ratefrom 7.95% to 5.75%, which will result in a $1.2 billion cut in individual income taxes over the FY 2018-2019 biennium. The Budget also maintains personal exemptions with the federal deductions, but repeals itemized deductions and certain credits, including the charitable deductions and the Earned Income Tax Credit. To help seniors, the Budget eliminates the income tax on pensions, and expands the homestead tax exemption for retirees.
With regard to businesses, the Budget reduces the Maine’s corporate income tax rate from 8.93% to 6.75% by 2021. Additionally, the Budget consolidates the number of corporate income tax brackets, and it broadens the corporate income base by eliminating exemptions for specific industries or activities, including, but not limited to, the repeal of the high-tech tax credit, job and investment tax credit, bio-fuel production tax credit, and employer credits for payment of employee expenses. Overall, these changes result in an estimated $50 million cut over the FY 2018-2019 biennium. If adopted, the Tax Foundation estimates that Maine would drop from 45thto 17th in the corporate tax component of the Tax Foundation’s State Business Tax Climate Index.
Another significant change in the Budget is a proposal to repeal Maine’s estate tax, which is a step that financial planners and banks have been requesting for many years. For a graying state, this step is intended to help keep more Maine people domiciled in Maine rather than moving their assets elsewhere.
To pay for these tax reductions, the Budget broadens Maine’s sales tax base to new goods and services and increases the rate from 5% to 6.5%. The sales tax expansion closely resembles a proposal that was signed into law in 2009 with little Republican support, and was later overturned by a people’s veto at the polls later that year. Under the new Budget, the sales tax base would expand to include: additional prepared foods, by broadening definitions of candy, soft drinks, snacks, and desserts; amusement and recreational services; maintenance services, personal services, such as barbers; personal property services, such as dry-cleaning and car washes; household services, like landscaping and home-security; professional services, such as legal services and accounting; and miscellaneous items, like cable-satellite services and consumer long-distance calling.
With regard to property taxes, which is the primary method by which local governments raise revenues, the Budget proposes to eliminate tax exemption on property held by non-profit corporations valued in excess of $500,000, which property would be taxed at 50% of the rate of other property. It modifies the property tax fairness credit, which caps property taxes for low-income and middle-income families, allowing more property owners to be eligible for relief. The Budget also consolidates the business equipment tax reimbursement program into the business equipment tax exemption program over a four-year period. Taxpayers most affected by this change include private colleges, cultural institutions, and hospitals. Additionally,telecommunications equipment taxed at the State level would be subject to local taxation, which would add more revenues to local coffers. However, in exchange for letting cities and towns collect additional property tax revenues, the Budget would eliminate the Municipal Revenue Sharingprogram, which is an annual transfer payment from the State to local government. According to representatives from local government, the net effect of this change would be a reduction in local revenues, even though many service center communities would make out better.
Taking all of these tax changes together, the Budget proposal purports to contain a $300 million reduction in the tax burden for Maine families and businesses, and according to the Tax Foundation, passage of the Budget would improve Maine’s State Business Tax Climate Index ranking from 33rd to 23rd.
The Budget also includes numerous cuts in expenditures, primarily in the human services arena. These proposals are intended to reduce the number of Mainers who qualify for government assistance for food, health care, or general assistance. The Budget also eliminates coverage entirely for certain programs like outpatient methadone providers, saving under $1 million, but purports to increase funding for drug enforcement by almost $8 million, including more DEA agents, more prosecutors, and more judges.
Also on the other side of the ledger, the Budget adds more than $46 million to fund MaineCare waitlists for the disabled and the elderly, adds an additional $22 million allocated to nursing home,and provides more than $14 million toward primary care provider rates and preventative servicesto address need for access to primary care and preventative services, invests $10 million to expand student awareness of education grant opportunities, and increases funding for the University of Maine System by over $9 million.
To view the entire 500+ Budget document and all of its subparts, go to this link.
A summary of the Budget developed by the Governor’s office can be found here.
An article on Maine’s budget by the Tax Foundation can be found here.