Testimony at Hearing on LDs 1124, 834, 1256, and 1113

We have a dilemma in Maine. We want good schools, good roads, safe communities, and opportunities to achieve a better life. Unfortunately, our current tax system is not generating the revenue needed to sustain public investments that will result in safe and vibrant communities and a strong economy. Adjusted for inflation, General Fund revenue in the FY 2014-2015 biennium is forecast to be lower than in any two-year budget period since the end of FY 1997 and a billion dollars below what it was in the FY 2006-2007 biennium. That’s a billion dollars we don’t have to make needed investments in our people, our schools, and our communities.

We’ve tried to compensate for recent revenue shortfalls by cutting spending. After five years of cuts, we’ve passed beyond a point that is healthy for Maine’s people and economy. We must make new revenue part of the solution. The Governor’s budget proposal confirms this by raising income and property taxes on hardworking Maine families who can least afford to see their taxes go up.

At the Maine Center for Economic Policy, we believe there is a better solution that we can achieve by adhering to the following objectives:

  • protect low- and middle-income people from property tax increases.
  • make sure Maine’s wealthiest residents pay their fair share.
  • export more of the costs for providing services and maintaining infrastructure to nonresident property owners and tourists.
  • increase accountability for taxpayer subsidies to large corporations and get rid of costly tax breaks and subsidies that don’t help Maine’s economy and disadvantage our locally owned businesses.

LDs 1113, 1124, 1256, 834, and 692 advance the objective of making sure Maine’s wealthiest residents pay their fair share to varying degrees and in different ways. At the core, each proposal seeks to raise revenue in a way that is best for the vast majority of Mainers and best for the state’s fragile economic recovery. Instead of raising taxes on low- and middle-income Mainers as is the case with the Governor’s budget proposal, these bills ask high-income individuals who have recovered relatively well from the recession and who already pay less per dollar earned in state and local taxes to pay their fair share.

LDs 1256, 834, and 692 would restore the top tax rate to 8.5% for taxpayers high-income taxpayers. MECEP’s primary concern with these proposals as a group is that they restore tax fairness on the margins, and, as a result, are limited in the amount of revenue they raise. Furthermore, while we support the goal of significantly increasing state funding for K-12 education, we believe this should be part of a comprehensive budget package that generates more funding for K-12 education than LD 692 would provide. Still, these bills represent a step in the right direction.

LD 1124 takes a more comprehensive and long overdue look at Maine’s income tax system. By adjusting the tax brackets and marginal rates, LD 1124 creates a more progressive income tax system. Absent further analysis from Maine Revenue Services, it is difficult to assess the revenue impact from this approach and its effect on the overall fairness of Maine’s state and local tax system. Income taxes represent the smallest share of state and local taxes low- and middle-income households pay. Increases in property and/or sales taxes may offset the benefits from income tax cuts, causing low- and middle-income taxpayers to pay more at the end of the day. Effectively this is what has happened with the 2011 income tax cuts. While low- and middle-income Mainers may receive some benefit from the income tax cuts, property tax increases contained in the Governor’s current budget proposal mean they will pay more in overall taxes. By contrast, wealthier Mainers, will pay less since income taxes account for the largest share of state and local taxes they pay. As a result, the benefits they receive from the 2011 income tax cut outweigh increased property taxes from the Governor’s budget proposal. The point here is that we need additional information from Maine Revenue Services to appreciate fully the broader implications of LD 1124.

LD 1113 most clearly aims to level the playing field between what the average Mainer pays in state and local taxes and what Mainer’s earning more than $250,000 pay. While there are a number of ways to implement this proposal, we believe it has the greatest potential to raise significant revenue AND advance tax fairness.

Clearly, we cannot overcome the budget dilemma Maine faces without new revenue. MECEP believes that the five proposals referenced in this proposal reflect an approach that is better for Maine’s low- and middle-families and will do more to grow Maine’s economy and create jobs.

Included with my testimony are additional materials that address some of the myths related to income tax changes like the ones proposed here. I appreciate your consideration of these materials and for your service to the people of Maine. I look forward to working with you to identify solutions to our current budget challenge.

Garrett Martin, Executive Director at the Maine Center for Economic Policy, testifying before the Joint Standing Committee on Taxation in favor of LD 1124 – An Act to Provide Income Tax Relief; LD 1113 – An Act to Provide Tax Fairness to Maine’s Middle Class and Working Families; LD 1256 – An Act to Establish Tax Fairness; LD 834 – An Act to Make the Income Tax More Equitable for Citizens of the State; and LD 692 – An Act to Provide Funding for Education by Restoring the 8.5 percent Income Tax Rate for High-income Taxpayers.