AUGUSTA – Lawmakers at Tuesday’s public hearing of the Taxation Committee heard testimony for an amorphous blob of policy proposals that could become the largest middle class tax hike in Maine history.
The handful of tax proposals will likely become one omnibus bill, but the basic elements of the final proposal Democrats will produce are predictable: repeal of the 125th Legislature’s tax cut and the creation of a new Robin Hood Assessment.
The hearing began with a bill from Rep. W. Bruce MacDonald (D-Boothbay) to repeal tax cuts passed in the 125th Legislature. Although the purpose of MacDonald’s bill (L.D. 692) is to ensure the state fulfills its commitment to fund 55 percent of Maine’s education spending, it is unclear whether Democrats have the authority to earmark a portion of their middle class tax hike for education.
MacDonald’s bill, like several other Democratic proposals, modifies income tax brackets with progressively higher rates for individuals making more than $137,500 and households making more than $206,250. Under his plan, the top bracket for joint filers would begin at $275,000 and equal $20,634 plus 8.5 percent of the excess over $275,000.
The most likely vehicle for the Democrats’ middle class tax increase is L.D. 1113, introduced by House Majority Leader Seth A. Berry (D-Bowdoinham) and co-sponsored by Senate President Justin L. Alfond (D-Cumberland).
Berry described his bill as a takeoff of the so-called Buffet Rule – named after the famous billionaire who shilled for President Barack Obama during the 2012 campaign. (Remember, Warren Buffet, the guy who bought Dexter Shoes and sold it overseas?)
Berry’s bill proposes to “establish a tax equalization assessment on those income filers who have an annual income equal to or exceeding $250,000.”
According to the bill’s summary:
“The tax equalization assessment must bring the total effective state and local tax rate of these tax filers to the average rate paid by all other Maine households, as determined by the Department of Administrative and Financial Services, Bureau of Revenue Services.”
“The bill also proposes to establish a tax equalization credit for those income tax filers who have an annual income below $125,000, but who pay a total effective state and local tax rate that is significantly higher than the average effective state and local tax rate for all other Maine households. The tax equalization credit may be structured as an expansion of an existing credit or refund or may replace and enhance such credits or refunds. The tax equalization credit must be funded entirely by the tax equalization assessment and must bring the total effective state and local tax rate of these tax filers as nearly as possible to the average rate paid by all other Maine households…”
Berry said that by levying this assessment, which is definitely not a tax rate increase, on individuals of high net-worth the state can give $100,000,000 in tax breaks as they see fit. According to his own testimony, the tax he is proposing will only affect roughly 4,500 individuals. That works out to an increase of more than $22,000 in taxes for these individuals.
This assessment, said Berry, will address Maine’s growing wealth inequality.
“L.D. 1113 would address these inequalities,” said Berry. “More importantly, it would help us deal with the revenue cuts in the Governor’s biennial budget.”
“This bill does not raise [tax] rates at all,” said Berry.
Berry’s proposed tax increase – in his words, “assessment” – will be applied after the Maine Revenue Services has collected regular taxes, calculated the average tax rate Mainers paid, and determined how much to assess high income earners whose rates were too low.
“Some will say the wealthy already pay too much tax. And that’s true in some cases,” said Berry.
However, he said his bill was politically, morally, and economically the right thing to do.
“Politically – the Buffet Rule is supported by 4 in 5 Mainers… Economically – research shows fair taxes lead to growth… Finally, morally – Maine people have always believed we should each do our fair share.”
Republicans on the Tax Committee offered questions to those presenting their tax hike bills, but could do little in the face of so much Democratic enthusiasm over the possibility of new revenues.
“We know what this is about,” said Sen. Doug Thomas (R-Somerset). “This is about beating up on the governor,” he said.
Thomas said he did not know where the Democrats planned to find all the rich people they intend to tax.
“If they find some rich folks to pay for tax hikes, they won’t stay in the state for long,” he said.
One Republican, Sen. Thomas Saviello (R-Franklin), also joined the middle class tax hike movement.
Rep. Terry M. Hayes (D-Buckfield) introduced LD 834, An Act To Make the Income Tax More Equitable for Citizens of the State, on Saviello’s behalf, because tax bills must originate in the House.
“When I was on the campaign, I never got thanked for cutting taxes,” he said.
He said it was difficult for him to explain to constituents that the tax reform passed by Republicans eliminated income taxes for 70,000 of Mainers poorest individuals and families.
“I had to make a statement. That was important,” he said.
His bill would “reinstate” the 8.5 percent rate for the top income bracket – i.e. repeal LePage’s tax cuts. Unlike MacDonald’s bill, the Saviello-Hayes bill does not try to dedicate new revenues to education; like MacDonald’s bill, and other Democratic tax schemes, it creates three income brackets and considers $250,000 the line demarcating the middle class from the wealthy.
Saviello also used his time at the podium to give Democrats a lesson on how to use the rhetoric of class warfare and beguile “rich” Republicans.
When he introduced his tax hike bill, Saviello said he got a lot of angry phone calls from Yarmouth – the town’s name serving as a euphemism “the wealthy.”
He then insinuated that Rep. Gary Knight (R-Livermore), one of the only lawmakers on the Taxation Committee skeptical of raising taxes on the middle class, would oppose his bill because he is personally wealthy.
By S.E. Robinson
Maine Wire Reporter