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Maine Governor Paul LePage signed a $6.1 billion two-yearbudget into law this week. The budget includes reductions to the state’s personal income and estate taxes in addition to other tax changes that will cost the state $153 million in FY12-13 and $400 million in FY14-15.
The new tax changes are both expensive (and force spending cuts elsewhere) and incredibly unfair. A reduction in the top income tax rate and increase in the state estate tax exemption primarily benefit the state’s wealthiest residents. According to an Institute on Taxation and Economic Policy analysis conducted for the Maine Center for Economic Policy (MECEP), more than half of the benefits of the new personal income tax reductions will go to the wealthiest 20 percent of Maine taxpayers.
Not only do the richest Mainers benefit most from this budget, 75,000 low, moderate and middle income families are likely see their taxes increase by as much as $400 annually because of cuts to the state’s property tax circuit breaker program that protects homeowners from paying too large a portion of their family income in local property taxes. (See our fact sheet on circuit breakers.) Whatever modest tax reductions these moderate and low income filers get from the new personal income tax cuts will be offset by the increase they’ll face in property taxes.
The major tax changes enacted in Maine this session are:
- A reduction of the top marginal personal income tax rate from 8.5 to 7.95 percent;
- A restructuring of the personal income tax rates, collapsing from four to three brackets replacing current rates with 0, 6.5, and 7.95 percent;
- Increasing the standard deduction and personal exemption to the federal amounts;
- Eliminating the state’s alternative minimum tax, which is designed to ensure that upper-income taxpayers pay at least some income tax;
- Raising the estate tax exemption threshold from $1 million to $2 million;
- Limiting the value of the property tax circuit breaker to 80 percent of the total benefit;
- Eliminating the annual indexing of the state’s motor fuels tax to inflation, a move that would make the gas tax less sustainable over time.
Photo via Jimmy Wayne Creative Commons Attribution License 2.0