Income Tax Cuts for the Wealthy or Property Tax Cuts for Everyone: A tale of two budgets

April 27, 2017

According to the online calculator put out by the Maine Center for Economic Policy, a Rockland family with two children earning $56,000 a year and owning a home would end up paying $547 more in taxes under Gov. LePage’s plan while they would pay $516 less in taxes under the Democratic plan. The top 1 percent of Mainers, with income over $384,000, stands to gain an average tax cut of $22,665 under the LePage budget.

To calculate how much you stand to lose or gain in the two competing budgets, visit the online tax calculator at www.mecep.org/calculator

by Andy O’Brien, The Free Press, April 27, 2017

With May nearly upon us, legislative leaders will begin the tense process of budget negotiations in Augusta in the coming weeks. And Republicans and Democrats couldn’t be further apart, particularly when it comes to public assistance and the voter-approved law mandating a 3-percent state income tax surcharge on income in excess of $200,000 to fund local schools. The governor has vowed to veto any budget that doesn’t repeal the new tax, which would only impact the top 2 percent of earners. Some House Republicans have signaled that they will insist on the repeal even if it means shutting down state government until their demands are met. Democratic leaders remain opposed to repealing the surtax, which voters approved by a 10,000-vote margin, 383,428 to 373,848, in November.

For several months, LePage has been barnstorming the state with a series of town halls, right-wing radio appearances and even, recently, press conferences to decry the 3-percent surtax. The governor’s rhetoric that the tax would make Maine’s top rate the “highest in the nation” has led to some confusion, particularly given his many misleading or downright false statements about the new law. At a town hall in Fort Kent on Monday night, one audience member pointed out that the 3-percent rate only affects household earnings in excess of $200,000 per year, not the income that’s under $200,000. For instance,  a household that earns $200,001 would only pay an additional 3 cents in taxes. A person who earns $500,000 per year would pay an effective tax rate of 8.86 percent, not 10.15 percent as the governor insists. But despite reality, the governor wasn’t hearing any of it. 

“It’s for the full $200,000. It’s 10 percent for the full amount, sir. It’s not incremental. It’s the top dollar,” LePage declared — falsely. “Once you hit $200,000 you are paying 10 [percent]. If you are paying $201,000, you are paying 10.15 percent after your deductions. Sorry, that’s the way it works. And I believe that that is a gross way to treat your successful people, and that’s why we’re losing them.”

The governor added that he has “hundreds of letters” from people that have left the state due to the new tax. The governor’s office did not return a request for copies of the letters. 

Committees Weigh in On Budget Proposal

Last month, legislative committees sent back their budget recommendations to the 13-member Appropriations Committee, which will ultimately decide what will be in the two-year spending package that the Legislature will eventually vote on. Republicans on the Taxation Committee are supporting a modified version of the governor’s tax package, while Democrats are largely rejecting his proposals. The six Republicans on the committee recommended repealing the 3-percent surtax on income over $200,000, but rejected the governor’s proposed 5.75-percent flat tax in favor of dropping the top income tax rate from 7.15 to 6.99 percent, the middle rate from 6.75 to 6.49 percent and the bottom rate from 5.8 to 5.75 percent. The committee voted 7-3 against the governor’s proposal to expand sales taxes to hundreds of goods and services and voted unanimously to reject the governor’s attempt to repeal the homestead property tax exemption for people under 65. 

Democrats and Republicans are also deeply divided over the governor’s plan to slash $65 million from programs that provide food, shelter and health care to tens of thousands of impoverished Mainers. The six Republicans on the committee voted to rubber stamp the governor’s proposal to eliminate MaineCare health coverage for parents earning as little as 60 percent below the poverty level (over $8,168 per year for a family of three) as well as for low-income 19- and 20-year-olds. Republicans also voted to reduce reimbursements to Maine’s 16 critical access hospitals, which include Waldo County General Hospital and LincolnHealth in Damariscotta, although not as much as LePage would have preferred. The governor’s health care cuts and reimbursement reductions to hospitals would likely result in hospital layoffs and jeopardize attempts to recruit new primary care physicians, according to Mark Fourre, CEO of Coastal Healthcare Alliance, the nonprofit health care provider that oversees Waldo County General Hospital in Belfast and Pen Bay Medical Center in Rockport under the MaineHealth umbrella.

Republicans also recommended eliminating funding to the General Assistance program, which provides emergency food and shelter to thousands of homeless and destitute Mainers. They also voted to cut all public assistance to legal non-citizens, including elderly and disabled refugees fleeing violence and political persecution. GOP committee members also voted to eliminate welfare for people with a past felony drug conviction, reduce the time limit for receiving Temporary Assistance for Needy Families (TANF) from 60 months to 36 months, and ban General Assistance to families who have reached the time limit for receiving TANF. HHS Committee Republicans also recommended eliminating “good cause” exemptions from welfare work requirements, which allow low-income mothers to not meet the 20-hour-per-week work rules if they have a good excuse, such as inclement weather, caring for a sick child, lack of transportation or the lack of child care. Democrats on the committee opposed all of the cuts.

The Democratic “Opportunity Agenda” Budget

While the governor is advocating for deep cuts to programs to pay for his tax cuts for wealthier income earners, Democratic leaders are touring the state with their own budget that delivers a massive property tax cut along with more investment in education, health care, business development  and workforce training without raising taxes. 

“The Opportunity Agenda is our best chance to focus on supporting working Mainers, rural communities and growing businesses,” said House Majority Leader Erin Herbig (D-Belfast.) “Our budget plan provides the largest property tax relief in Maine history, makes community college more affordable and backs Maine’s innovators and small businesses so that they can put people back to work. It puts money aside to help our families and communities fight the drug crisis together. And we do it all without raising taxes for anyone. It’s the budget Maine needs.” 

The Democratic plan calls for increasing the homestead exemption from $20,000 of tax-exempted value on a home to $30,000. The measure would also expand tax credits to offset property tax bills, increase revenue sharing to municipalities to help pay for local services, and meet the voter-mandated requirement that the state fund 55 percent of the cost of education by keeping the 3-percent surtax on income in excess of $200,000. The Opportunity Agenda would also provide $55 million to increase wages for direct-care workers in nursing homes and direct-care, home-care, and assisted-living facilities; $5 million to support opioid addiction treatment; $2.5 million for mental health care for military veterans; another $4 million for Head Start and Pre-K programs; $10 million to assist businesses with building their workforces; $1 million for small business incubator programs; and more funding to help low-income families with basic necessities like food, housing, heat and employment assistance. The entire package would be paid for with a combination of the new 3-percent tax, recreational marijuana tax revenue, previously uncollected online sales tax revenue and projected economic growth.  

The Democrats are also proposing four bonds to fix transportation infrastructure, reduce student loan debt, expand access to high-speed Internet and invest in research and development. 

According to the online calculator put out by the Maine Center for Economic Policy, a Rockland family with two children earning $56,000 a year and owning a home would end up paying $547 more in taxes under Gov. LePage’s plan while they would pay $516 less in taxes under the Democratic plan. The top 1 percent of Mainers, with income over $384,000, stands to gain an average tax cut of $22,665 under the LePage budget.