May 10, 2013

M.D. HARMON: Here we go again: Virtual replay of 2010's attempt at 'tax reform'

M.D. Harmon

Naively, some of us thought we had solved the issue of peddling "tax reform" as a way to conceal higher taxes in 2010, when a Democratic Legislature tried to raise taxes on everything we bought while offering only a nominal income tax reduction in return.

 PUBLIC HEARING

The Legislature's Taxation Committee will take public testimony on L.D. 1496, the tax reform bill, at 10:30 a.m. today in room 127 of the State House.

That was firmly rejected by 61 percent of Maine voters. They went on to elect a Republican Legislature and governor, who actually did cut income taxes and take 70,000 lower-income taxpayers off the rolls.

Voters, however, decided they couldn't live without Democrats in charge, so they returned them to legislative control two years later.

And this is what we got: A "bipartisan" virtual replay of the last "reform," with a few added tweaks and curlicues, but this time with no pretense at keeping the tax bite level overall.

Instead of being revenue-neutral, this "Gang of 11" bill is being sold as "budget-neutral" -- raising enough new money to balance the budget without significant cuts to state revenue sharing, education and welfare.

Since estimates of additional revenue sufficient to do that are running well north of $200 million, and may be more than $300 million, according to some lawmakers, the net amount of new taxes the sponsors believe the bill could rake in is huge.

At least L.D. 1496, a vaguely laid-out "concept draft" of a law to "Modernize and Simplify the Tax Code" up for a public hearing today, is up front about its sponsors' desire to generate $700 million from a mixture of residents and tourists partly via an increase in the sales tax rate from 5 percent to 6 percent. (Note: That's not a "1 percent increase," it's a 20 percent increase.)

In return, sponsors say, personal and corporate income taxes go down and the estate tax is repealed, among other things.

But, if the past is any guide, rates lowered today can be raised again tomorrow as lawmakers respond to pressure-group "needs." Look at the near-decade it took us to get rid of a previous "temporary" increase in the sales tax to 6 percent.

The bill raises real estate transfer taxes on a sliding scale, while, as the text states, "The cigarette tax increases from $2 to $3.50. ... The tax rate on prepared foods increases from 7 percent to 8 percent, and the definition of 'prepared foods' is expanded. The total excise tax rate on malt liquor and hard cider products increases from 35 cents to 70 cents per gallon ... (and) on wine ... from 60 cents to $1.20 per gallon. The tax rate on automobile rentals increases from 10 percent to 15 percent ... (and) on lodging ... from 7 percent to 8 percent, plus an additional 2 percent to be allocated to the Tourism Marketing Promotion Fund."

And the bill taxes many goods and services at the 6 percent rate, including groceries, heating fuel, electricity, water, all sorts of "personal services" such as funerals, haircuts, beauty parlor and health club visits, business and professional services, home repairs, cable and satellite TV and Internet service, telephone charges and "meals served in cafeterias and dining halls."

While pondering claims that this pushes these tax increases off onto "tourists and other nonresidents," think of how many of them you pay.

That makes it more interesting, doesn't it?

The bill claims most of this will be "offset" by lowering the income tax to a flat 4 percent -- but it cancels almost all deductions, including mortgage interest and charitable contributions, and makes Social Security benefits, which are now exempt, taxable. How much this would save Mainers -- if anything -- remains unclear.

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