LePage takes new tack in outdated quest to remove earnings taxes

Former Republican Gov. Paul LePage is taking a brand new tack in his quest to scale back and finally remove the state’s earnings tax – a key speaking level in his marketing campaign to unseat Democratic Gov. Janet Mills this fall.

LePage instructed reporters at a Maine Republican Occasion “Unity Rally” in Lewiston final month that he now not needs to begin by decreasing taxes for upper-income brackets and doesn’t intend to make up for the misplaced state income by rising the gross sales tax, each of which he unsuccessfully pursued as governor.

As an alternative, LePage says he would start by exempting all seniors from earnings taxes after which section out earnings taxes for others from the underside up by rising the quantity of earnings that’s tax-exempt annually. 

And reasonably than rising gross sales and different taxes to make up for misplaced income, LePage mentioned he expects elevated financial exercise ensuing from extra individuals staying in Maine or shifting again from zero-income tax states comparable to Florida would make up for half the fee. Unidentified price range cuts would make up the remaining, he mentioned.

“First yr: seniors, no extra earnings tax. That’s my first one,” LePage mentioned. “We’d have a look at the highest charge, however I believe the best way to do away with the earnings tax is, reasonably than have a look at the speed, enhance the exemption.”

It’s unclear what triggered the adjustments to LePage’s earnings tax plan, however his earlier technique failed when he was in workplace partly due to opposition inside his personal celebration to elevating the gross sales tax. It additionally comes as LePage has sought to melt his picture as he courts impartial voters he’ll want if he’s going to unseat Mills and earn an unprecedented third nonconsecutive time period in workplace.

Like different critics of the earnings tax, LePage argues that eliminating it would create financial development by encouraging extra individuals to remain within the state, together with high-income earners.

“Now we have so a lot of our seniors that go away us for six months and a day due to the earnings tax,” LePage instructed Lewiston Republicans. “We’re shedding their capital, their mental capability that assist(s) our small companies. Their youngsters will wish to observe when their mother and father and grandparents go away. It’s a domino impact and we have to cease it. You may all go to Walt Disney in January and February, however the different 10 months, keep in Maine and assist us turn into very affluent.”

Opponents, nonetheless, argue that eliminating the earnings tax will blow a gap within the state price range, requiring drastic cuts to companies and workers and forcing will increase in gross sales and property taxes, which disproportionately have an effect on individuals with decrease incomes. And other people would nonetheless go away the state to flee winters, they are saying.

Mills has not pursued any main shakeup within the state’s general tax construction, however has moved to scale back tax burdens on seniors and lower-income taxpayers and relieve stress on property taxes, together with by rising the share of schooling prices paid for by the state.

Mills’ workers didn’t reply to requests to interview the governor for this story or reply to the small print of LePage’s new plan.

As a part of a bipartisan price range plan handed in April, Mills returned half of a projected $1.2 billion income surplus to most taxpayers, lowered earnings taxes for retirees and elevated funding for property tax reduction and the Earned Earnings Tax Credit score.

Along with sending $850 checks to qualifying taxpayers to assist take care of inflation, Mills and the Legislature lowered earnings taxes for private and non-private pensioners by rising the deductions for residents from $10,000 to $25,000, offering $36.8 million in tax reduction subsequent yr that may common $560 per individual. By 2025, that deduction will enhance to $35,000 per particular person, which might imply common financial savings of about $795 per individual.

The price range deal additionally contains an extra $7 million in extra property tax reduction for about 100,000 low- and middle-income owners and renters, who’re eligible for as much as $1,000 a yr or $1,500 a yr for seniors.

Mills additionally labored to extend the Earned Earnings Tax Credit score, which gives a refundable tax credit score to working Maine individuals and households. That’s estimated to assist 100,000 Maine individuals with incomes of lower than $57,414, by rising the utmost profit by a median of $400 per household, bringing the full EITC profit per household to a median of $764 per yr.

Marketing campaign supervisor Alexandra Raposo additionally mentioned that Mills has “resisted efforts by members of her personal celebration to extend taxes on the Maine individuals.”

“The underside line is that Governor Mills has lower taxes and put more cash again into the pockets of Maine individuals – particularly hard-working center class Mainers – whereas guaranteeing that the price range is balanced and that the State meets its obligations to ship essential companies,” Raposo mentioned. “She will not be fascinated with repeating LePage’s tax shift scheme the place he claimed to chop taxes for Maine individuals when he actually simply shifted their tax burden.”

Decreasing and eliminating the earnings tax has been a longstanding – and elusive – aim for LePage, who bumped into opposition from his personal celebration throughout his eight years as governor.

LePage and the Republican majority within the Legislature efficiently lowered the highest earnings tax charge from 8.5 p.c to 7.15 p.c in 2013. However efforts in 2015 to additional cut back or remove the earnings tax confronted opposition from each Republicans and Democrats, as a result of it could have required a rise in gross sales taxes to make up for the misplaced revenues. That proposal would have lowered the earnings tax charge to five.75 p.c by 2019, at a value of $1.8 billion a yr, which LePage sought to offset by rising the gross sales tax from 5.5 p.c to six.5 p.c.

The gross sales tax had elevated from 5 p.c to five.5 p.c as a part of the 2013 price range, which was adopted after the Legislature overrode a LePage veto. That enhance was meant to be momentary, however was made everlasting in 2015, as soon as once more in a price range adopted regardless of a LePage veto, who vowed to veto all laws till the Legislature handed a constitutional modification to remove the state’s earnings tax.

Final month, LePage downplayed the potential for gross sales tax will increase to make his plan work.

“I don’t assume we have to,” he instructed reporters in Lewiston. “Now that I noticed what occurred once we lowered – we went from 8.5 (p.c) right down to 7.15 within the earnings tax and the subsequent yr, revenues have been historic revenues and what we discovered was each greenback we lower in taxes, 96 cents comes proper again into your economic system. So it grows the economic system.”

“I’m not saying there isn’t some changes that have to be made,” he added, “however I don’t consider it needs to be on the backs of our aged.”

Lucy Dadayan, a senior analysis affiliate for the Tax Coverage Middle, a three way partnership of the City Institute and the Brookings Establishment, referred to as LePage’s plan to section out the earnings tax an election-year gimmick and irresponsible, given an unsure financial outlook that features a potential recession looming on the horizon. She mentioned a few dozen states have moved to scale back earnings taxes in the previous couple of years, which she expects to be momentary, particularly if a recession takes maintain.

“We’re in a really unsure fiscal time,” Dadayan mentioned. “It’s essential to remember that the sectors that led to income development are probably momentary and that states shouldn’t be making drastic selections with budgets and needs to be conscious about fiscal uncertainties. We’d already be in a recession. We already see a declining or unstable inventory market which will certainly have an effect on earnings tax revenues on the state price range. I believe no drastic measures needs to be taken in a time of uncertainty.”

Seven states, together with Florida, Texas and Alaska, don’t have any earnings taxes. New Hampshire and Tennessee solely tax capital features, although they not too long ago determined to remove that tax, Dadayan mentioned. Such a transfer could be tough for Maine, she mentioned, as a result of traditionally not less than a 3rd of the state’s income comes from earnings taxes and the state lacks another particular income supply, such because the oil trade in Texas and Alaska.

Earnings taxes present roughly $2 billion a yr to the state, or 44 p.c of all income. Eliminating earnings taxes for individuals over the age of 65 may value as a lot as $441 million based mostly on 2020 tax data, in response to the state’s price range company.

Dadayan pointed to Kansas as a cautionary story, including that research have repeatedly proven that earnings tax cuts don’t normally generate the extra financial exercise promised.

In 2012, Republican Gov. Sam Brownback signed a invoice ushering within the largest tax lower for companies and people in Kansas’ historical past, eliminating about $230 million in taxes throughout the first yr and a projected $935 million yearly after six years. The laws was drafted by the American Legislative Change Council, a conservative assume tank. However elevated financial exercise didn’t change the misplaced income within the quick time period, as Brownback promised, forcing the Republican Legislature to roll again the tax cuts in 2017.

A report revealed in 2015 by the Middle on Funds and Coverage Priorities, a progressive assume tank, concluded that earnings tax cuts haven’t proved to generate financial development. The report talked about Maine as one of many states to have lower earnings taxes based mostly on this assumption.

“This strategy will not be supported by the preponderance of the related tutorial analysis and has not labored significantly effectively up to now,” the report states. “The states that attempted deep earnings tax cuts over the past three a long time haven’t seen their economies surge consequently.”

LePage argues that Maine’s earnings taxes are a giant motive why retirees transfer to Florida for “six months and a day” and that eliminating them would preserve extra retirees right here and even encourage them to maneuver again. He concedes that retirees should go to Florida to keep away from the chilly, snowy months, however their extra months in Maine will assist gas the economic system, creating extra income for the state.

The truth is, LePage moved to Florida shortly after leaving workplace in 2019, citing the shortage of earnings taxes as a motive. He re-established residency in Maine in 2020, with the aim of difficult Mills this fall.

Mike Santo, an authorized public accountant and chairman of the Maine Society of CPA’s Taxation Committee, mentioned that earnings and different taxes do play a big position in retirement planning for higher center class and rich retirees, particularly those that want to promote a enterprise. For instance, he mentioned, somebody incomes $100,000 in retirement may save $7,000 a yr by shifting to Florida.

However different components – such because the local weather and private circumstances – additionally play a giant position.

“Most of those individuals are older and they only don’t wish to be right here when it’s chilly,” Santo mentioned. 

Santo mentioned that eliminating the earnings tax may entice extra retirees to keep up their Maine residency, but it surely’s tough to say whether or not sufficient individuals would achieve this to make up for misplaced state income.

“They could nonetheless be going to Florida for a couple of months, however they could be coming again sooner as a result of they’re now not frightened about that six months and a day rule,” he mentioned. “It’s undoubtedly robust to say that if all the individuals coming again would make up that fifty p.c of misplaced income from earnings taxes.”

Rep. Sawin Millett, R-Waterford, whose experience on the state price range is revered by each Republicans and Democrats, acknowledged LePage’s shifting rhetoric on earnings taxes and up to date requires a bottom-up phaseout.

“That could be a new focus this yr,” Millett mentioned. “It’s all the time good to keep away from having to tax people who find themselves residing hand to mouth. If the quantity is an inexpensive quantity – considerably beneath a livable wage – I believe it does make sense.”

Millett mentioned it’s a “reliable concept” that the earnings tax cuts may generate extra financial exercise to assist offset income losses. However it could be tough to place that plan into movement when it comes to the price range, he mentioned, as a result of the price range course of doesn’t enable for predictions about how individuals will behave if earnings taxes are lowered or eradicated.

“We don’t do dynamic fiscal notes. In different phrases, you’ll be able to’t actually e book financial savings based mostly on taxpayer habits that hasn’t but occurred,” Millett mentioned. “You may’t do this with out proof that they’ve returned earlier than you’ll be able to truly e book it.”

Whereas LePage predicts that elevated financial exercise would cowl half of the misplaced income, he additionally vowed to make up the opposite half by chopping authorities waste, which he says features a important a part of the state’s workforce.

Throughout his first two phrases, LePage focused security internet packages, comparable to Common Help and different welfare packages, for cuts, in addition to municipal income sharing, which added stress to native property taxes.

In interviews after the Republican rally final month, LePage mentioned he would goal the state’s workforce, saying he saved the state $275 million by decreasing the state’s workforce from 14,300 staff to 11,900. He mentioned one space for potential cuts could be the Division of Transportation.

“State workers – now we have means too many,” LePage mentioned. “We’re not an employment company. What we needs to be doing is having environment friendly workforce and we must always have individuals going to work. Now we have to turn into environment friendly as a authorities and we’re now not environment friendly as a result of individuals work distant. So any person has obtained to get again on high and see the place the waste is. There’s a lot.”

Raposo, Mills’ marketing campaign supervisor, mentioned the governor is open to concepts whereas criticizing LePage’s price range administration.

“The actual fact is, when LePage says he would lower ‘authorities waste,’ Maine individuals know that he means he’ll come after well being care, schooling, and public well being, all of which have been both lower, outright denied, or underfunded whereas he was governor, and all of which Gov. Mills and the Legislature have fought to revive or correctly fund,” she mentioned. “Gov. Mills stays open to actual tax lower proposals that actually cut back prices for Maine individuals whereas sustaining the vital companies they depend on.”

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