Who’s telling the truth about tax repeal?

By Rep. Paul Davis
(R-Sangerville)
    Mark Twain once remarked, “There are three kinds of lies – lies, damn lies and statistics.” Maine voters might ponder that observation as they try to separate fact from fiction about the People’s Veto of a new tax law. Their decision on the June 8 ballot will determine if Maine will retain the current tax system or launch into an overhaul that would increase the sales tax by about $80 million a year and trim the income tax to achieve “revenue neutrality.” It’s a big issue, and confusion is rampant  – for good reason.
    We are now seeing a television ad campaign by the heavily funded group that favors changing the system, called No Higher Taxes For Maine. Their commercials claim that if voters repeal the law and keep the current system, “tax rates will go up by nearly 30 percent.” They argue further that all income groups will be treated fairly, and that the tax code would become more progressive. This simply is not true. The taxes will stay as they are if this new tax expansion is repealed. That is the truth. Taxes will not go up if this new law is repealed.
    A year ago, the tax bill (LD 1495) passed the Legislature on partisan lines. Like every other Republican in the House, I voted against it. In the Senate, only one Republican supported it. We suspected that it did, in fact, heavily favor the wealthy. It also expanded the sales tax to more than 100 services and activities never taxed before, such as labor on car repairs, house cleaning, movie tickets, pet services and amusement park entry fees. The list seems to go on and on. (Governor Baldacci removed the taxes on golf greens fees and ski lift tickets from the original bill. Is this fair to working people who don’t happen to ski or play golf?)
    This overhaul isn’t real tax reform but merely a lift-and-shift scheme that also jacks up taxes on meals and lodging to “export” some taxes to tourists. The tax on eating in a restaurant will go from 7 percent to 8.5 percent. Don’t be fooled, the vast majority of those paying this new tax will be Maine people.
    A petition drive by Republicans and Green Independents collected 60,000 signatures to bring the matter to a People’s Veto. Then a remarkable thing happened. A veteran CPA named Al DiMillo appeared on the scene. As former director of taxation for Raytheon Co. and Bath Iron Works, he knows taxes inside and out.
    A lifelong Democrat, DiMillo had spent some 300 hours analyzing the law, using Maine Revenue Service (MRS) reports. If there were a neutral referee in this game, he is it. And his findings are revealing. As you probably know, the law would lower the top marginal income tax rate from 8.5 percent to 6.5 percent. While moving the lower, rates of 0 percent, 2 percent, 4.5 percent and 7 percent to 6.5 percent. Because of these lower rates in current law and the various deductions we all receive, more than 75 percent of Mainers pay an effective tax rate of less than 3 percent. The new law, however, puts everyone at a flat rate of 6.5 percent. It also eliminates the standard deduction and limits the most common itemized deductions – mortgage interest and property taxes. They are replaced by a “household credit,” but it begins phasing out at $27,500 for singles and $55,000 for married couples. Due to this phase-out, according to MRS, some 82,000 taxpayers will face an overall tax increase of about $450.
    Perhaps the most offensive aspect of the new law is the lopsided distribution of the tax cuts. DiMilllo’s analysis of an MRS report for 2010 shows that a group of 4,545 taxpayers making more than $317,000 (less than 1 percent of the population) would receive $28 million of the $50 million in income tax savings. That comes to about $6,150 each – a 12.4 percent cut. The other 99 percent of taxpayers would split the remainder, giving them an average tax cut of only $27 – 1.1 percent. That’s bad enough, but it’s made worse by a change made to the state budget, which suspends the inflation indexing of the tax tables until 2014. That turns the $27 cut into a tax increase of $45 in 2013. It would stealthily increase the state’s income tax “take” by an estimated $45 million to $50 million.
    One thing about taxes that most people agree on is they must be applied as fairly as possible. This new law is very unfair to working people, to middle income earners, and to the elderly.
    We need to cut income taxes, but not this way. We should repeal this law and let the next Legislature design an income tax reduction that cuts every taxpayers tax in a way that is fair and equitable to all. Please vote “Yes” to repeal.