AUGUSTA, Maine — Last month Congress passed a huge tax package that made several longtime tax breaks permanent. Now Gov. Paul LePage is proposing that Maine conform its income tax policies to the federal action.
But the changes would come at a cost of $20 million a year.
In its tax reform package, Congress made permanent such popular breaks as expensing for the purchase of equipment used by businesses, the so-called section 179 provision. It also included a deduction for teacher expenses, along with dozens of other provisions.
LePage says it makes sense for Maine to continue to piggyback on federal tax law.
"We're just going to get worse if we don't conform," he says. "And worst doesn't do well … you know, when you are one of the worst, the highest-taxed states, it's very difficult to attract economic development."
LePage says if the state does not conform, Mainers will see an increase in taxes because the provisions Congress acted on were in place as of last year. He says to make Maine truly competitive, income taxes must come down.
"For Maine to become prosperous, Maine has to become competitive with its tax structure, and we currently aren't," he says.
But the change will come at a cost. Congress added the $600 billion tax package to the federal budget deficit. But Maine will actually have to come up with a way to pay the more than $20 million a year cost of the tax breaks.
Finance Commissioner Richard Rosen says he's working on how to do that.
"We'll be reviewing accounts and balances in state government to provide the resources, to bring that together and provide the resources for the tax conformity," he says.
Rosen says his staff is looking at the thousands of state programs hoping to find areas where spending can be trimmed. He points out the state is spending over $3 billion a year, and so the cuts needed to fund tax conformity add up to less than one percent of state spending.
Rep. Peggy Rotundo, a Democrat from Lewiston and co-chair of the Appropriations Committee, says she's pleased that Rosen is working to find the funds.
"It's hard for us as a Legislature to know where there might be savings within his administration, so we do depend on the chief executive to help us find money," she says.
Rotundo says that doesn't mean what LePage recommends will be acceptable to the Legislature. His budget last year was significantly rewritten by a bipartisan majority of lawmakers that overrode his veto of the budget they had crafted.
But, with tens of thousands of Mainers — including professionals and small-business owners — waiting to see what state tax policy will be for 2015, Rotundo says lawmakers know they need to act quickly.
"We know that we need to take action soon because there are implications for people that are filing taxes," she says.
The tax conformity bill has yet to be printed, but Rosen says he's confident that he will have a funding plan ready for consideration in time for a public hearing.
