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The Devil’s in the Details: What the Gang of Eleven’s Tax Bill Will Do

Gang of Eleven

The Gang of Eleven

Reduce Maine’s income tax to four percent: Working Mainers would see their income taxes cut in half, from eight percent to a maximum rate of four percent. Nearly all tax deductions would be removed in order to simplify Maine’s income tax policy.

Eliminate the estate tax: Also known as the Death Tax, an estate tax is assessed on the property of deceased individuals. Reforms signed into law by Gov. Paul LePage in 2011 raised the estate tax exemption from $1 million to $2 million effective January of 2013. The Gang of Eleven’s proposal would eliminate the estate tax entirely.

Reduce corporate income tax rate: Maine currently imposes an income tax on corporate entities deriving revenues from Maine. The corporate income tax is graduated, with rates ranging from 3.5 percent (for income up to $25,000) to 8.93 percent (for income in excess of $250,000). The Gang of Eleven’s plan would reduce the top corporate income tax rate from 8.93 percent to 7.5 percent.

Give “sales tax fairness credit” worth $1,000 to low-income individuals: In order to ensure Maine’s tax code remains progressive – i.e. the wealthy pay more – the Gang of Eleven’s plan would send checks worth up to $1,000 to low-income individuals. The credit, which would be paid per individual filer, would be phased out as income rises.

Expand sales tax base: The Gang of Eleven’s plan would expand the sales tax to include the following goods and services: amusement, entertainment and recreational services; groceries; coal, oil, gas and firewood; residential electricity; newspapers; coin operated vending machines; residential water; personal care services; personal property services; real property services; elective cosmetic services; leasing/rental redefinitions; funeral services; barber shop, beauty parlor and health club services; cleaning, storage, and repair of clothing and shoes; business and legal services purchased by consumers; any other professional or informational services; installation, repair, maintenance and other labor service fees; basic cable and satellite television; and meals served in cafeterias, dining halls, and restaurants.

Increase sales tax rates: The Gang of Eleven’s proposal is projected to raise $300 million in additional yearly revenues by increasing certain sales and excise tax rates. The general sales tax rate would increase from five to six percent. The cigarette tax would increase from $2.00 to $3.50. The tax rate on prepared meals would rise from seven to eight percent. The total excise tax rate on malt liquor and hard cider would increase from $0.35 to $0.70 per gallon, while the tax on wine would increase from $0.60 to $1.20 per gallon. The tax rate on car rentals would increase from 10 percent to 15 percent.

Increase lodging tax rate: The tax rate on lodging would increase from seven percent to 10 percent, with two percent of that increase set aside for the tourism promotion fund. The tourism promotion fund, which currently receives $10 million per year, would increase to $16 million.

Real estate transfer tax increase: The bill would create a progressive tax structure for residential real estate transactions. The current 0.44 percent real estate transfer tax on residential property would increase to 0.6 percent for real estate valued at less than $250,000, 0.8 percent for real estate valued between $250,000 and $500,000, 1 percent for property valued between $500,000 and $1,000,000, and 1.5 percent for property valued at more than $1 million. Non-residential real estate transactions would be taxed at a rate of 1 percent.

Creates “sales tax collector fee” of 0.5 percent: The Gang of Eleven’s proposal would compensate businesses for collecting sales tax. Every business that collects sales tax would receive proceeds from a fee worth 0.5 percent of the transaction.

Create a $50,000 homestead exemption: The homestead exemption program provides individuals who have owned a property in Maine for at least 12 months and make that property their permanent residence a tax exemption worth $10,000 of their home’s value. Whereas LePage’s budget proposal would eliminate the homestead exemption for everyone younger than 65, the Gang’s plan would raise the exemption to $50,000. In practice, the plan would cause towns and cities to subtract $50,000 of a home’s value before calculating a property tax bill.

Replace the current revenue sharing formula with a more generous one: According to Gang of Eleven lawmakers, their plan will increase Maine’s revenue sharing payments to municipalities from $120 million to $160 million per year. This would be accomplished by transferring 1.5 percent of sales and income tax revenue to the municipalities with the highest property tax rates.

Replace circuit breaker program with tax credit: The bill would replace the current property tax circuit breaker program with a “property tax fairness credit.” The credit, worth up to $1,000, would be paid out as part of state income tax returns. The value of the credit would equal half of the amount by which property taxes exceed six percent of income. Renters would also qualify for credit payments worth 15 percent of their rent.

Restore business equipment tax reimbursement (BETR): The bill fully funds property tax reimbursements to businesses under the BETR program for up to 12 years.

Reduce non-profit property tax exemption: The bill would reduce the property tax exemption that non-profits can collect. Non-profits would be able to exempt 100 percent of the first $250,000 of their property’s value. Beyond $250,000, only 25 percent of the just value will be taxed. The bill would not change the tax exempt status of places of worship.

Efficiency grants: The Gang’s package includes $1 million in grants to municipalities each year for the “Efficient Delivery of Local Services.” According to the bill’s supporters, these grants will be used to “increase collaboration in service delivery, and to identify other cost efficiencies in governance.”

No more income tax deductions: Although the state income tax rate will fall to four percent under the Gang’s plan, Mainers will lose nearly all income tax deductions, including deductions for home mortgage interest, real estate taxes, medical and dental expenses, charitable contributions, theft and casualty losses, other itemized deductions, affordable housing, Social Security benefits taxable at the federal level, and more.

(Recommended: Gang of Eleven Touts Tax Increase…)

S.E. Robinson
Maine Wire Reporter
srobinson@mainepolicy.org

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