AUGUSTA – A Democrat-led task force in Augusta is preparing to eliminate $40 million in so-called tax expenditures. If the task force’s recommendations are approved by the Legislature, the move will constitute a massive backdoor tax increase.
Maine’s Tax Expenditure Review Task Force was created by the 126th Legislature’s budget and tasked with finding $40 million in new tax revenues. Democratic lawmakers have said the task forces job is to close loopholes that benefit special interests, but Republicans believe the force was designed as a way to execute tax increases on top of the increases in sales, meals and lodging taxes already in the budget.
For task force members, the environment is target rich, as exemplified by the recently published Maine State Tax Expenditure Report, a report prepared by Maine Revenue Services for the Joint Standing Committee on Taxation. The 213 page report details the diverse tax breaks, exemptions and deductions that allow Maine residents and businesses to pay less in income, sales and excises taxes.
The items listed in the report include narrowly targeted exemptions that provide tax relief to specific classes of individuals, such as the blind or the elderly, or certain business sectors, such as renewable energy, but also broad tax breaks that apply to the majority of Maine residents and many small businesses. In total, 61 income tax exemptions and 136 sales taxes exemptions will be on the chopping block when the task force convenes on October 31.
“All of our efforts, from our tax code to our policy making, need to be focused on strengthening our economy and growing jobs,” Senate President Justin Alfond (D-Portland) has said in a press release. “It makes good sense that the committee take this opportunity to look at what’s working and what’s not and align our tax incentives to our economy.”
The task force’s members include the chairs of the Legislature’s Taxation Committee Sen. Anne Haskell (D-Cumberland) and Rep. Adam Goode (D-Bangor), Commissioner of the Department of Administrative and Financial Services Sawin Millett, Garrett Martin of the progressive Maine Center for Economic Policy, Catherine Lee of Lee International, and Ryan Low, former commissioner of the Department of Administrative and Financial Services. Two Republican lawmakers, Sen. Roger Katz (R-Augusta) and Rep. Donald Marean (R-Hollis), are also on the task force.
Sen. Doug Thomas, the top Republican on the Taxation Committee, said the task force just another scheme to raise taxes. “When you read the title of the book [the Tax Expenditure Report), to me it becomes obvious: we have no money, it’s all theirs,” said Thomas. “And if they let us keep our money, it’s an expenditure.”
Thomas said Democrats will most likely target amusement and recreational services for new taxes. Amusement and recreational services, such as ski lift tickets, have never been taxed. According to the expenditure report, doing so would raise nearly $50 million for FY2014 and FY2015.
Assistant House Minority Leader Alex Willette (R-Mapelton) said House Republicans will not support any measure from the task force that punishes Maine residents and small businesses.
“If there are loopholes that no longer serve their purpose as incentives, then we can look at those, but this process shouldn’t be a way for Democrats to inflict ideologically-charged tax increases,” said Willette.
Although Democrats have said they intend to go after loop holes and corporate tax breaks, they’ve already shown a willingness to raise taxes to the detriment of charitable organizations.
In June, the Legislature passed its two-year budget, and tucked away in the legalese was a short provision that will limit the total itemized deductions Maine taxpayers can claim for charitable donations at $27,500. According to Maine Revenue Services, the deduction cap will cost Maine taxpayers more than $60 million over the next two years. According to MRS, the change will allow the state to cover the $44.9 million dollar cost of bringing Maine’s tax code into conformity with changes made at the federal level in January of 2013.
The cap on deductions will only directly impact high-income Mainers – specifically, those who donate more than $27,500 to charitable organizations or non-profits. While this will increase the amount of taxes Maine draws from wealthier individuals from 2013 onward, the benefits these individuals will reap from the LePage administration’s income tax rate reductions in 2012 will offset the deduction limit.
Still, the deduction limit will reduce both the incentives for donating and the amount of money individuals have to donate. In other words, capping deductions means less incentive to donate to a non-profit and less money to give in the first place.
President Barack Obama has tried since 2009 to impose a limit on charitable deductions at the national level. But in Maine, the idea of limiting deductions was first proposed in LePage’s budget and kept in place by Democrats in the Legislature.
Maine Wire Reporter