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Gov. Paul LePage Proposes Corporate Income Tax Reform In Latest Budget

Author: Scarinci Hollenbeck, LLC

Date: April 1, 2015

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Earlier this year, Maine Gov. Paul LePage released his 2016-2017 budget proposal. This document contained several suggested reforms, including a change in the state’s corporate income tax policy.

LePage has argued that currently, the state’s tax policy puts it at a disadvantage and makes it less competitive compared to not only states in New England, but also the entire nation. The governor has repeatedly aimed to provide both corporations and residents of The Pine Tree State with lower income taxes.

Tax reform for Maine

The $6.3 billion proposed budget, which LePage has claimed will save Maine $300 million per year by 2019, would cut state income taxes and make up for this lost revenue by increasing the sales tax, according to The Bangor Daily News.

The governor has championed income tax cuts before, spearheading a proposal in 2011 that resulted in Maine completely eliminating this particular burden for anyone generating an annual income of less than $5,000, the media outlet reported. In addition, his efforts caused the top tax rate to drop to 7.95 percent from 8.5 percent.

Now, LePage is looking to expand this tax relief granted to those in lower income brackets, as his budget would eliminate all state income taxes for those who bring in $9,700 per year or less, according to the news source. The proposal would also grant those with greater income progressively lower tax rates.

Corporate income tax reform

In addition to cutting income taxes for individuals, the governor’s proposal would also reduce the income taxes paid by corporations, lowering their top rate to 6.75 percent from 8.93 percent. LePage suggested making this change as Maine’s Revenue Forecasting Committee has forecast that during fiscal years 2016 and 2017, the state will bring in $8.1 million in revenue through the corporate income tax.

The committee based this prediction on estimates for corporate profits, stating that these earnings would expand at a somewhat more rapid rate in 2015 and 2016, after rising at a modestly slower pace in 2014.

Sales tax reform

While LePage has specifically targeted individual and corporate income taxes for reduction, he has taken aim at specific sales tax exemptions, maintaining that having such a policy lacks adequate justification, according to The Bangor Daily News.

He asserted that instead of taking money out of people’s paychecks, policy should provide a levy when they choose to buy goods and services, the media outlet reported. LePage’s proposal would still exempt certain basic items such as groceries from sales tax, but it would adopt an amusement tax that would affect purchases of goods and services such as golf course admission, movie tickets and admission to historical sites. He asserted that his plan is based in fairness.

“Everybody’s got to pay their fair share,” stated LePage, according to the news source. “We’re going to a consumption-based tax structure, so you pay as you go, rather than every Friday taking money out of your paycheck and sending it to the government.”

Outcome uncertain

Under these policies, LePage’s budget would generate $219 million in sales and use taxes in its first year, while at the same time providing the state’s companies and residents with $176 million less in income taxes, according to The Bangor Daily News.

It is worth noting that while cutting taxes – for example those on residents and corporations – would reduce revenue for the state, the benefit of the proposed policies is uncertain, the media outlet reported.

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