On Friday, Governor Paul R. LePage released his biennial budget. The highly anticipated budget includes significant changes to the state’s tax system, as well as changes to health care and general assistance spending.
While many suspected that Gov. LePage would eliminate the income tax all together, his tax reform proposal is more modest. Instead of eliminating the state income tax, the budget reduces the top individual income tax rate from 7.95% to 5.75%. The state’s corporate tax rate is also reduced by over 24% to 6.75%.
Taxes on all pensions would be reduced, and taxes on military pensions would be eliminated entirely. Likewise, Maine’s estate tax would be removed.
To compensate for lost revenue from these tax cuts, the governor is proposing an increase in the state sales tax. The service provider tax will be increased 1 percentage point to 6%. Similarly, the sales and use tax, which was raised by 10% in 2013, would be raised again to 6.5%.
Sales tax on meals would be reduced from 8% to 6.5%, and taxes on auto rentals would be reduced from 10% to 8%. The lodging tax would remain at 8%.
Furthermore, the proposed budget would repeal itemized deductions, as well as remove a number of business and personal credits. The governor claims that this will simplify the state’s complex tax system and make up for lost revenue from the income tax cuts.
In a move hinted at in Gov. LePage’s inauguration address, the budget eliminates municipal revenue sharing. To compensate for the lost revenue, state telecommunications excise tax revenue collection will be turned over to municipalities. Municipalities will also be given the opportunity to tax large non-profits.
The LePage administration claims that its tax reform plan could reduce the tax burden on Mainers by over $300 million.
In the budget, the governor increases funding for a number of programs. Over $25 million are set aside by 2017 to assist the elderly and disabled who are on waitlists for home and community based services.
Funding for nursing homes is also increased, and special focus is given to nursing homes in rural areas.
According to the budget, the state will make up for lost federal funding and provide 100% reimbursement at Medicare rates to primary care providers. Non-emergency Emergency Department visits will be compensated at primary care provider rates to help alleviate the costs. Likewise, the budget eliminates “separate facility” fees for doctors who work at hospitals, and compensates them at the same Medicaid rates as non-hospital doctors.
Following rhetoric from the governor over the past year, this budget blocks all General Assistance (GA) and TANF funds from going to undocumented immigrants. In further changes to the state’s GA program, the governor reverses the way the state helps municipalities provide General Assistance. The state will reimburse municipalities for 90% of GA spending until they reach 40% of their 6-year average of GA spending, and then reimbursing 10% of GA spending by municipalities after that.
The budget redirects money set aside for Funds for a Healthy Maine to help pay for various initiatives.
The independent Tax Foundation, which the LePage administration relied heavily on in their presentation, noted that the budget would improve Maine’s overall tax ranking to 23rd compared to other states.
“Governor LePage’s proposal is both comprehensive and well thought out, reducing tax burdens and holding the potential to trigger a substantial improvement to the state’s business climate,” wrote Jared Walczak and Scott Drenkard of the Tax Foundation in their analysis.
According to CEO Matt Gagnon, The Maine Heritage Policy Center has not taken a position on the governor’s budget. A full analysis will be forthcoming from the non-profit think tank.
Reducing eligibility to the existing programs for seniors and disabled is nothing more than dumping the financial burden onto the hospitals and public in general thru higher healthcare costs. This isn’t a fix, it’s a way to justify more unsustainable tax cuts. Thank GOD we have a Democratic majority in the House to put an end to many of these BOLD ideas which have blatantly failed in many other GOP states. Do Maine Retirees ever ask yourself why Maine Retirees pay several hundred a month for their health insurance, while the general public has better insurance through Medicare Advantage with significantly lower out of pocket costs?
This is a bold approach to attracting, expanding & retaining Maine businesses. Paul LePage knows first hand what businesses need in order to thrive. His work with bringing more container shipping to Portland illustrates his strong business insight. He’s a businessman folks… and not a politician.
It sounds good except I find it hard to believe. I am waiting for the other shoe to drop. The corporate welfare program, which the state has been escalating for 40 plus years, depends on personal income tax on labor as a trade off for giving capital a tax free ride so if this is what it sounds like, the state would also have to deconstruct many of its economic development corporations which would be a good thing.
The benefit is that the lower general tax rate will read better on state by state reports which probably don’t incorporate all the special interest tax free deals that the state has been handing out. If the state is actually going to stop handing out deals to special interests that then it would help pay for lowering the general business tax and with a lower general business tax, Maine could attract businesses across all economic sectors instead of the upper crust only. Then saying that one is going to provide jobs instead of handouts to those on general welfare sounds a lot more believable. It is highly unbelievable that the average welfare recipient will go from depending on a handout to a job paying above average income- which is the exclusive goal of the corporate welfare system, which needs to be booted out!
If the corporate state is dismantled, -the instrument of wealth redistribution to capitalists, which excludes the retail sector from benefits, then raising the sales tax isn’t so bad. And not to mention the cost in savings of financing that huge bureaucracy- also would compensate for lower taxes.. I know no one is talking about deconstructing the corporate state, but that could be because no one has really wanted to talk about its existence all along. I just don’t see how that system can survive without the personal income tax, which we are hearing Lepage wants to eliminate. The steps in this budget could lead there.
Getting rid of municipal revenue sharing sounds like a return to local authority,and a step back from a centrally managed economy. Getting rid of the estate tax is good news.