The Struggle for Tax Reform in Maine: Richard Woodbury Presentation to Vermont Tax Reform Commission January 2010

Transcription

1 The Struggle for Tax Reform in Maine: Richard Woodbury Presentation to Vermont Tax Reform Commission January 2010

2 History School funding referendum ( ) Property tax cap referendum (2004) LD1 Property tax reform (2005) TABOR referenda (2006, 2009) LD1495 Income and sales tax reform (2009)

3 Themes Base-Rate Trade-off Deductions, credits, exemptions, exclusions, reimb ursements all narrow the tax base, and require higher rate on everything else. Exportability Certain taxes are paid proportionately more by residents, and certain taxes are paid proportionately more by non-residents. Approaches to Progressivity

4 What s the Problem? Property Tax Outpacing Out-of-Pocket Means Income Tax at 8½ Percent Deters Economic Growth Tax Burden is Too High, also Deters Growth Sales Tax Base Outdated and Narrow

5 6% Figure 1 Property Taxes as Percent of Personal Income in FY2006, by State 5% 4% 3% 2% 1% 0% Source: U.S. Census Bureau; Bureau of Economic Analysis.

6 45% 40% Figure 2 Property Taxes as Percent of State and Local Taxes in FY2006 NH: 62% 35% 30% 25% 20% 15% 10% 5% 0% Source: U.S. Census Bureau

7 Percent of Households 60% 50% 51% Figure 4 Distribution of Gross Property Tax Burden in Maine 40% 41% 33% 30% 24% 20% 10% 17% 14% 10% 7% 0% >4% >5% >6% >8% >10% >12% >15% >20% Source: Allen and Woodbury Tax Burden (% of Income)

8 16% Figure 6 Share of Housing Units That Are Vacation Homes, by State 14% 12% 10% 8% 6% 4% 2% 0% Source: U.S. Census Bureau

9 11% Figure 7 Highest Income Tax Rates by State 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Source: Federation of Tax Administrators; Selected State Departments of Taxation.

10 8% Figure 8 Sales Tax Rates by State 7% 6% 5% 4% 3% 2% 1% 0% Source: Federation of Tax Administrators

11 160 Figure 9 Number of Services Taxed, by State Source: Federation of Tax Administrators, 2007 Survey

12 12% Figure 11 States' Tax Burden Rankings in 2008, under the Tax Foundation's New Methodology 10% 8% 6% 4% 2% 0% Source: Tax Foundation

13 16% Figure 13 Tax Revenues as Percent of Personal Income in FY2006, by State 14% 12% 10% 8% 6% 4% 2% 0% Source: U.S. Bureau of the Census; Bureau of Economic Analysis

14 Major Tax Reforms LD1 (2005) Increased State Aid for Schools Property Tax Circuit Breaker Expansion Spending Growth Guidelines LD 1495 (2009) Income Tax Reduction and Reform Sales Tax Base Expansion Note: LD 1495 is on hold pending a people s veto referendum vote in June 2010.

15 Percent of Households 35% 33% Figure 16 Effect of Circuit Breaker on Percentage of Maine Households with High Tax Burden 30% 25% 24% No Circuit Breaker After LD 1 20% 17% 15% 14% 11% 10% 10% 7% 7% 5% 5% 3% 2% 2% 0% >6% >8% >10% >12% >15% >20% Source: Allen and Woodbury Tax Burden

16 2009 Tax Reform Income Tax Reform Reduced Top Rate from 8.5% to 6.5% (or 6.85% above $250K) Replaced deductions with resident credit Sales Tax Reform Meals and lodging tax from 7 to 8.5 percent Rental car tax from 10 to 12.5 percent Expanded base of general sales tax to certain services

17 Sales Tax Base Expansions Amusement, entertainment and recreation services Movies, concerts, festivals, amusement parks, sporting events, miniature golf, go-carting, sight-seeing, whitewater rafting Installation, repair and maintenance services Auto repair, jewelry, cameras, guns, musical instruments, electronic and mechanical equipment, lawn equipment, computers, appliances, clothes, shoes, furniture Personal property services Dry cleaning, laundry, embroidery and monogramming, car washing, pet grooming, picture framing, house cleaning, furniture and rug cleaning, interior decorating, storage, moving, towing, boat mooring Transportation and courier services Limousine, courier

18 Flat Tax with Resident Credit 6.5 percent flat rate (6.85 above $250,000) Resident Credit restores progressivity Phases out at higher income levels Refundable at lower income levels Choice of base credit (like standard deduction) or alternate credit (like itemized deduction) Incremental value of itemized deductions capped ($13,636 individual, $27,273 joint)

19 Average Tax Rate 8% Figure 22 Impact of Tax Reform by Income, for Four-Person Family Currently using Standard Deduction 7% 6% 5% 4% 3% 2% 1% 0% Current Policy LD % $0 $40,000 $80,000 $120,000 $160,000 $200,000 $240,000 Source: Author's Calculations. Income

20 Exporting Tax Burden Non-residents pay sales tax (generally not income tax) Taxes on meals and lodging, rental cars, and recreation services draw proportionately more from non-residents than other taxes. Unlike deductions, the resident credit in reformed income tax goes to residents only.

21 Estimated Impact of LD % of residents have income tax reduction. 87% have reduction in total tax burden. Those with a tax increase have very high itemized deductions.

22 Tax Reform Politics Losers much more vocal than winners. Involving key constituencies in decision making. People s veto in Maine.