Here’s a letter I just wrote to the Kennebunk Post:
The Post recently published an op-ed piece by State Representative Paul Bennett, who extolled the benefits of recent state tax cuts. He attempted to play down the benefits to wealthy taxpayers and talk up the measly benefits for the rest of us. He completely failed to mention the state’s budget shortfall and the proposed cuts to crucial programs. The truth is that Maine’s Republicans are playing Robin Hood in reverse, giving tax breaks to wealthy Mainers while cutting services for poor and middle-class Mainers and raising taxes on those who use the circuit breaker program.
Rep. Bennett wrote that “the lower 90 percent of taxpayers will realize 56.3 percent of the benefit” from the cuts in income tax. In other words, the top 10% of earners are taking home a disproportionate share — 43.7%, according to Bennett’s numbers — of the state’s lost revenue. A report by the Maine Center for Economic Policy (MECEP) puts their share of the benefit at 50%. The top 1% will take home 20% of the tax cut, while the bottom 50% of taxpayers will only get 9% of it. These numbers don’t include changes to the circuit breaker program and the estate tax, which will cost low-income Mainers money while helping millionaires.
Despite all the hooplah about cutting taxes, the savings for most Maine taxpayers are miniscule. Rep. Bennett describes a family of four with an adjusted gross income of $50k (their actual income would be higher) saving $300. That’s less than a dollar per day. According to MECEP, taxpayers earning between $28k and $48k (the median household income is $46k) will only save $71 in 2012 and $83 in 2013. Taxpayers earning under $21k will only save $5 in 2011 and $6 in 2012.
Meanwhile, those in the top 10% will have their income taxes reduced by $874 in 2013. The top 1% will save an average of $2,770 in 2013.
Rep. Bennett points out that the top ten percent of earners in Maine are those households earning over $119k. Oddly, he suggests that a cop and a teacher or a nurse and a plumber would make this much. The starting salary for teachers in our district is only $33k, while an experienced teacher with a Ph.D. can earn just under $60k. State troopers make $37k to $49k. A teacher and a cop might break into the top 10%, if the teacher has a Ph.D. and the cop works a lot of overtime, but it’s more likely they’ll earn about $90k. By definition, households in the top 10% are not typical.
The most blatant giveaways to wealthy Mainers are changes to the estate tax. Rep. Bennett mentions the estate tax several times but never by name, instead calling it the “death tax.” The estate tax is not a tax on death; it’s a tax on wealth. Everybody dies, but only millionaires pay the estate tax. Actually, only multimillionaires pay the estate tax, since the exemption just rose from $1 million to $2 million. According to the law firm Pierce Atwood, “Through proper estate tax planning, married couples essentially will be able to shield $4 million of assets from Maine estate taxation, and other techniques may also be used to further reduce the tax burden.”
According to MECEP, the increase in the estate tax exemption only benefits 550 estates, but it’s costing the state $30 million, or about $55,000 per estate. In other words, the state is donating $30 million to help people who inherit over a million dollars, because they could really use that extra $55k. This is what Rep. Bennett calls “much-needed relief for hard working families.” Meanwhile, the median hard-working household gets $71.
Rep. Bennett tries to relate the estate tax to ordinary Mainers. He says that “many Maine families are land- or asset-rich and cash-poor,” and he suggests that cash-strapped families might have to sell off the fishing boat or the farm that’s the source of their income. Imagine that you’ve worked hard all your life as a fisherman, but you don’t have much cash. While you’re making out your will, you realize that your fishing boat is worth one and a half million dollars. The priciest boat I can find in Uncle Henry’s is under a quarter million, but let’s assume your boat is worth six times that much. Do you (A) leave the boat to your kids in the hope that they’ll continue your dangerous occupation or (B) sell it and find a better investment so your kids won’t be cash-poor fishermen? If you had to pay an estate tax, would you be upset that your kids were only getting $1,460,000 instead of $1,500,000 (assuming 8% with a $1M exemption)? Would you move to New Hampshire before dying to avoid the tax? I ask because Rep. Bennett says the tax change “makes Maine more competitive with other states.”
While we’re on the subject of Mainers who are land-rich and cash-poor, did Representative Bennett mention the circuit breaker program? Ah yes, he said he’d like to make it easier to use. He didn’t mention that while the legislature was cutting taxes on millionaires, they cut the Maine Residents Property Tax and Rent Refund Program by 20%. The program benefits over 75,000 households, some of which will now have to pay $400 more in property taxes. If you make enough money to save $400 under the tax cuts, you can thank somebody in the circuit breaker program for funding your tax break. If you’re in the top 10%, thank two of them.
Meanwhile, the governor is proposing massive cuts to the Department of Health and Human Services. Legislators from both parties have balked at specific cuts that the governor asked for, but Republicans haven’t said no to the overall idea of slashing the DHHS budget. Supposedly, Maine simply can’t afford to provide low-income residents with basic services such as nursing homes, addiction treatment, and preventative care. But apparently we can still afford to give handouts to the rich, and we can pay the indirect costs when poor people and addicts go to the emergency room or to jail.
Rep. Bennett cites a study by the Beacon Hill Institute, which was founded by a Republican politician, that says the tax cuts will create 3,700 jobs in Maine by 2015. It’s not clear why the institute thinks that spending by Maine households creates more jobs than spending by the state government. The study includes the bizarre assumption that taxpayers “work less in response to higher income taxes,” and when income taxes go down, “workers are encouraged to put in more hours which results in higher take home pay.” If your tax rate goes from 8.5% to 7.95%, you get to take home 0.55% more of your income — a few cents for every hour that you work. Does that inspire you to work more hours? Does the change in the estate tax inspire you to work more hours? Does your loss of circuit breaker benefits… oh yeah, that one might.
On the other hand, there’s no question that cutting the state budget will cause jobs to disappear. A study by MECEP indicates that some of the governor’s proposed cuts to health care could cost 4,400 jobs. Tell that to Bennett’s hypothetical nurse. Restricting access to MaineCare also violates federal law, but the governor is hoping to get a waiver from the feds, even though no state has received a similar waiver.
If you get laid off in 2013 and can’t get MaineCare because of budget cuts, look on the bright side — hopefully you saved some money on your 2012 taxes.