The Maine Residents Property Tax and Rent Refund (“Circuit Breaker”) Program provides targeted property tax relief to qualified homeowners and renters. In program year 2010, Maine Revenue Services (MRS) issued 75,443 general refunds and 13,157 refunds for seniors. The average general refund was approximately $492 and the average senior refund was about $369.
By targeting relief to eligible taxpayers, the Circuit Breaker Program achieves two important goals. First, the refunds generate economic activity because money that is refunded is likely spent in the local economy. Indeed, the almost $42 million in refunds issued in program year 2010 generated economic activity across a variety of sectors, including $8.4 million in health care, $7.3 million in housing, $3.9 million in retail, and $1 million in private education. Additionally, the $42 million in refunds supported over 400 jobs including $13 million in wages.1 These numbers are significant when one considers that we have lost close to 4,500 jobs since January 2011. Indeed, maximizing program participation would add an additional 800 jobs in Maine.
The Circuit Breaker Program not only supports increased economic activity, it targets relief to those who pay a disproportionately high percentage of their income in property taxes. This lessens the regressive nature of the property tax. In 2009, before factoring in the Circuit Breaker benefit the bottom 20% of Maine taxpayers paid 8.3% of their income in property taxes while the top 10% paid only 3.1%. For those in the bottom 20%, the Circuit Breaker Program reduced their effective individual property tax rate by almost a full percentage point.2 It is also noteworthy that the Circuit Breaker is more effective at reducing effective tax rates for the bottom 50% of Maine taxpayers than the Homestead exemption.3
Despite the Circuit Breaker Program’s success, less than half of those eligible apply for and receive a refund. There are a number of possible explanations. First, the application period is not aligned with the income tax filing period. This means that the program must be marketed separately, which adds costs, and that individuals must be prepared for a different set of deadlines and paperwork, effectively doubling their administrative burden. Second, the application is long and appears daunting and calculating the refund is particularly complex.
Given the challenges we face, it is important that we prioritize our efforts. Improving the application process and restoring the 20% cut that was included in the most recent biennial budget will do more to provide relief where it is most needed and increase economic activity. LD 474, for example, considered in the first session, would have helped achieve these goals.
While I commend the intent of Senator Plowman and Representative Keschl, their proposals may do more harm than good. Further complicating the application process effectively penalizes those who are playing by the rules and likely means that more people who are eligible will not file. In addition, the cost of enforcing such provisions will likely outweigh the benefits. We are not aware of any evidence of widespread waste, fraud, or abuse in the Circuit Breaker Program. Until we have a better understanding of the pervasiveness of these issues, we cannot advance solutions that are fiscally responsible and move us closer to achieving the broader outcomes for this program.
For these reasons, MECEP respectfully urges this Committee to vote ought not to pass on both LD 1680 and LD 1693.
1 MECEP Analysis using IMPLAN Economic Modeling.
2 Maine Revenue Services, Tax Incidence Study, at http://www.maine.gov/legis/ofpr/taxation_committee/interim_schedule/index.htm.
Dan Coyne, MECEP Legislative Director, testifying before the Joint Standing Committee on Taxation against LD 1680, “An Act to Amend the Circuitbreaker Program to Include Claimants Occupying Property Pursuant to a Trust and To Require Proof of Payment of Rent”, and LD 1693, “An Act to Amend the Law Governing Abatements of Property Taxes for Infirmity or Poverty.”