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.