Maine’s budget reflects our collective economic priorities and societal values. A budget that truly reflects our mutual aspirations should maintain public investments in our people and communities, whether the economy is robust or weak. In these uncertain economic times, quick recovery and ultimately shared prosperity will require shared responsibility and sacrifice.
Unfortunately, this proposed budget, with its many reductions in critical investments and major, substantive policy changes, does not reflect our collective values. In Maine, we esteem hard work and the common good; this budget favors a small percentage of Mainers with the most income. The proposed tax policy changes are no exception; they constitute an imbalanced approach that cuts services and investment important to tens of thousands of Maine working families while lining the pockets of a wealthy few.
Under the proposed tax changes, the wealthiest 10% of taxpayers would reap approximately half of the benefits. Doubling the estate tax exemption to $2 million beginning in tax year 2013 will cost the State approximately $30 million in the 2014- 2015 biennium and benefit only 550-575 estates. This is about the same amount of money needed to make the state earned income tax credit refundable and expand it from 5% of the federal credit to 20%. Currently, the Maine earned income tax credit benefits approximately 46,000 working Maine families.
The proposed income tax changes include eliminating the alternative minimum tax (AMT), which ensures that wealthy taxpayers do not use loopholes to reduce their tax liability to zero. It also reduces the top income tax rate from 8.5% to 7.95%. Over the biennium, these income tax changes will cost about $136 million, with those making almost $120,000 or more in 2013 receiving 48.2% of the benefit. People with incomes greater than $363,438 in 2013, the top 1%, will receive about 15 percent of the benefit.
Altogether, the Administration’s tax cuts will add $203 million to the state’s existing $840 million revenue shortfall. But the Administration insists on adopting these fiscally irresponsible tax cuts for the wealthy while demanding that working families, municipalities and local property taxpayers, retirees, and others bear the brunt of sacrifice to balance the budget. To make matters worse for working families, the proposed budget cuts the Maine Residents Property Tax and Rent Refund Program, also known as the Circuit Breaker Program, by 20%. This program is of enormous importance to working families, providing provides refunds to homeowners and renters who pay a disproportionate share of their income on property taxes. Although less than fifty percent of eligible families apply for and receive a refund, 75,544 Maine non-elderly families received a refund in Fiscal Year 2010.
The 20% cut to the benefit is draconian, especially in a time when state budget cuts shift costs to municipalities, compelling them to raise property taxes in order to maintain vital services. For many families this cut, which could be as high as $400, is in essence a net tax increase for many low and moderate income families.
Additionally, experience has shown that tax cuts for the wealthy will do less to create jobs than investments in people and infrastructure. Despite Administration claims to the contrary, investments in education and transportation will actually decline given the impending loss of substantial federal revenues.
Balancing an $840 million budget is a daunting challenge, and it is not made any easier when that shortfall is recklessly exacerbated by adding another $200 million in tax cuts that primarily benefit Maine’s wealthiest at the expense of working families.
The real solution is to put all options on the table. Expand and make refundable the Maine earned income tax credit, expand the Circuit Breaker benefit not reduce it, evaluate closely all tax expenditures, increase the income level at which the top rate kicks-in, and maintain investments in education, transportation, and retirement security.
These solutions will benefit far more Maine families and ensure predictable and stable revenues necessary for economic recovery and shared prosperity.
Dan Coyne, Fiscal Policy Analyst, testifying before the Joint Standing Committees on Appropriations and Financial Affairs and Taxation in opposition to the tax cuts in LR 2067, “An Act Making Unified Appropriations and Allocations for the Expenditures of State Government, General Fund and Other Funds, and Changing Certain Provisions of the Law Necessary to the Proper Operations of State Government for the Fiscal Years Ending June 30, 2012 and June 30, 2013.”