Hoping to avoid a potential government shutdown, this week the Legislature passed a biennial budget that once again makes significant tax changes, but stops well short of the major tax reform desired by many legislators. The budget has now gone to Governor LePage who is expected to veto it, at which point the Legislature is expected to vote on overriding the veto. The Governor may also exercise line item vetoes on particular aspects of the budget. The following is a summary of the key tax aspects of the budget:
- The top marginal rate would be reduced from 7.95 percent to 7.15 percent. The top rate would also kick in at a higher income threshold, $37,501 in 2016 and $50,000 in 2017, versus $20,900 in 2015 for single taxpayers.
- Blunting the effect of the tax rate cut, the budget includes a phase-out of itemized and standard deductions for higher income taxpayers. The itemized deductions of a single taxpayer begin to phase out at $70,000 of income and would be completely phased out for single taxpayers with $145,000 of income.
- A number of tax credits would be eliminated, including the jobs and investment tax credit and the high-technology investment tax credit.
- A number of changes would be made to reduce the income tax burden on lower-income taxpayers including increasing the standard deduction, lowering tax rates applicable to smaller income amounts, creating a refundable earned income tax credit and a refundable sales tax fairness credit, and exempting military pensions.
- The homestead exemption would increase to $15,000 for 2016 and $20,000 for 2017 and beyond.
- The general sales tax rate had been scheduled to be reduced from 5.5 percent to 5 percent. The budget would leave the rate at 5.5 percent.
- The sales tax on lodging would remain at 8 percent for the remainder of 2015, and increase to 9 percent next year.
- The meals tax would remain at 8 percent this year and for future years.
- The service provider tax applicable to telecommunications services and various other services would increase from 5 percent to 6 percent. The service provider tax would also be expanded to apply to basic cable service and interstate and international telecommunication services sold to a business.
- Certain items, such as soft drinks, desserts, and potato chips would no longer be exempt from sales tax.
- For decedents dying in 2016 or after, the exclusion amount would equal the federal exclusion ($5,430,000 in 2015) which is indexed for inflation.