Maine Income Tax Forms

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					     Best Practice
Fiscal Policies for Maine
          Iris J. Lav and Karen Lyons
     Center on Budget and Policy Priorities
   MECEP Annual Tax and Budget Conference
                  Augusta, Maine
                 January 8, 2007
     Strengths: Natural Beauty
• Maine is 32nd in tourism employment as share of
• Tourism supplies 2.7 percent of tax revenue
• Can Maine do better? Vermont is 16th in
  tourism employment and gets 4.3 percent of tax
  revenue from tourism
• Maine could invest in more tourism development
  – and also modestly increase tourism-related
  taxes to finance some of that investment
  Strengths: Fiscal Responsibility
• Good bond rating (not best because raters don’t
  like TELs)

• 30th in level of tax-supported debt – per capita or
  as percent of personal income
               Per Capita Tax-Supported Debt

  $4,000   $3,614   $3,374
  $2,000                      $1,373
  $1,000                                $716   $634

            CT        MA        RI       VT     ME
       Maine Debt Service Well Below
       5% of General Fund Revenues

Source: Maine Office of the Treasurer
   Less Regressive than Most States
                                          State and Local Taxes (2002)
                                                                                   US Avg

for non-elderly taxpayers
 Shares of family income





                                 Lowest   Second   Middle   Fourth   Next   Next 4% Top 1%
                                  20%      20%      20%      20%     15%
   Overall Tax Levels: Moderate
• Maine is in a higher-cost, higher-tax neighborhood

• Maine state and local taxes per person are 10th
  highest in country, BUT they are below
  Connecticut, Massachusetts, and Rhode Island
  and just $100 higher than Vermont

• Maine has 3rd highest tax level measured as
  share of income — need to raise incomes

• Note: These are 2004 rankings, before LD1 and
  higher circuit breaker. Maine rankings may have
      Taxes = Strong Services
• Ranks best in country:
  – Adults with health insurance
  – Low-income adults under 65 with health
  – Parents with health insurance

• Ranks 5th best in children with health
• Ranks 7th in access to prenatal care
      Taxes = Strong Services
• Ranks 17th in 4th and 8th grade reading and math

• Has 6th lowest poverty gap in reading and math

• Ranks 21st in high school graduation rate
                     * * * *
• Ranks less well on higher education measures-
  need to improve

• Property tax unrest – perception
  that property tax is unfair and too

• Relatively low incomes of
                  Property Tax
•   Property tax is relatively high
    –   6th highest in the country
    –   Few other revenue sources for local governments

•   Assessment practices exacerbate problem
    –   Maine’s assessment and valuation practices are
        among the worst in the nation!

•   But Maine has better property tax relief than
    many states – combination of homestead and
    generous circuit breaker
 Abysmal Assessment Practices

  Best practices (IAAO): assessment at
  100% market value, annual valuation,
  and periodic reassessment

• Municipalities assess in Maine

• Required to maintain assessments at no less
  than 70% of market, but many do not

• No enforceable requirement for periodic
 Abysmal Assessment Practices
• In many municipalities, no consistent valid
  method for updating valuation between

• Many municipalities too small to meet
  professional assessment/valuation standards

• Residents can block reassessment by
  refusing to vote funds for it at town meetings
              Results of
         Assessment Practices
• Poor assessment and valuation practices lead to
  general perception that the property tax is unfair

• If property values aren’t regularly adjusted for
  increase in inflation and valuation, it becomes more
  necessary to raise rates – further aggravating

• Putting an assessment cap on top of such poor
  assessment practices would lock in the inequities
  and further exacerbate property tax unhappiness
        Recommendations for
        Assessment Practices
• Assessment should be done at county or state
  level, not municipal
• Update valuations annually
• Conduct reassessments every 6 or 7 years
• State should provide some funding
  – For example, New York gives local government $5 for
    each parcel assessed at 100% market value

• State savings: wouldn’t need to re-do for aid
  Advantages of Circuit Breaker
• Best type of property tax relief because
  relates property tax payment to income
  - it goes to those overburdened by
  property tax

• For those in eligibility range, protects
  against property tax increases – in
  Maine pays half the increase if property
  tax is between 4% and 8% of income and
  all the increase if 8% or more of income
 Great Circuit Breaker in Maine,
• One of most generous circuit breakers in

• Post LD1
  – Rebate up to $2,000 of property tax
  – Eligible if income up to $77,000 single,
    $102,000 couple
  – Relives property tax in excess of 4% of
  – Homeowners and renters
              Is it a Secret?
• 92,000 out of 225,000 eligible claimed it
  last year for 2004 property tax

• So more than 130,000 eligible Maine
  residents are failing to get property tax
  relief that is intended for them

• Are these the same senior citizens and
  others who are clamoring for more
  property tax relief?
         Outreach, Outreach!
• Advantage: circuit breaker outside income
  tax system, because people more likely to
  perceive it as property tax relief

• Disadvantage: requires separate filing that
  can result in low take-up rate — unless
  there is energetic outreach campaign
 Recommendations for Outreach
• Create concentrated period for filing – 3 to 4
• Train people to help fill out forms
• Have assistance available at wide variety of
  institutions – schools, churches, community
  centers, senior centers, etc - on well publicized
  filing days
• Public service announcements
• Involve local elected officials
• And more (think EITC outreach)
            More for Seniors?
• Argue both ways:
  – Fixed-income seniors can find property tax increases
  – Families with child-raising expenses and others may
    also have trouble paying

• If do more for seniors, important to relate to
  – For example, circuit breaker could cover all property
    tax over 4% of income for seniors (this is more
    common design among states)
      Local Option Tax Could
   Directly Relieve Property Tax
• Maine’s sales tax (combined state & local)
  is lower than every other state except
• A low-rate sales tax option for cities could
• Having two types of taxes gives perception
  that payment for public services more
  widely shared - people tend to prefer
    Balancing Local Option Tax
• Would additional sales tax make Maine’s
  overall tax system more regressive? Yes

• Could offset with a larger and/or
  refundable state EITC

• Also could provide additional relief to
  seniors via the circuit breaker
              A State EITC
• Maine has a very small (5% of federal)
  non-refundable EITC – cannot help offset
  regressivity of other state/local taxes or
  provide wage supplement to working poor

• 16 states have refundable EITCs that
  piggyback on the federal EITC – including
  Massachusetts (15%), Vermont (32%),
  and Rhode Island (25% and partially
    Moving Beyond the Property Tax-
           Raising Incomes

• Wage rates in Maine are low compared to national
  averages or to other Northeastern states
  – Wage rates average for health occupations, higher for

• Requires right kind of economic development-
  Investment is Key

No State Can Cut Its Way To Greater Prosperity
   Tax Breaks for Companies
 Often are Ineffective/Inefficient
• Of top 10 recipients of TIF financing in 2004:
   – 6 received $13.53 million and reduced
     employment by 852 jobs
   – 2 received $3.18 million in TIFs and created zero
   – 1 received $1.02 million and did not report
   – Katahdin Paper received $1.82 million and was
     the only one to create jobs (127)

• All recipients of TIF: net loss of 769 jobs
 Source: Maine Department of Economic and Community Development
      Evidence Other Tax Breaks
           Also Don’t Work
• Hundreds of survey, econometric, and
  representative firm studies show that tax cuts
  are unlikely to stimulate economic activity and
  create jobs in a cost-effective manner
• Some studies show no improvement. Even with
  optimistic assumptions, governments may lose
  between $39,000 and $78,000 annually for each
  job created. Can force public sector layoffs that
  cancel any additional private sector jobs
Source: Robert Lynch, Rethinking Growth Strategies: How Sate and Local Taxes
and Services Affect Economic Development, Economic Policy Institute, 2004
  Investment: Higher Education

• Quality higher education is often at the top
  of business leaders’ lists of what makes a
  good business climate

• Can be core for other types of investment
   Investment: Brookings Ideas
• Capitalize more on ―quality of place‖
  –   Revitalize towns and cities
  –   Augment land and farm conservation
  –   Protect use and access to forests, farms, lakes
  –   Promote outdoor recreation and high-quality tourism

• Brookings suggests increasing lodging tax
  and issuing revenue bonds to support
   Investment: Brookings Ideas
• Invest more in research and development
  efforts that currently are under-funded
  – Maine Technology Institute is state supported
    nonprofit that makes grants
  – Maine Economic Improvement Fund supports
    university-based research

• Encourage industry ―clusters‖

• Brookings suggests bond issue to enhance,
  but is this a better use of funds than TIF
  and ETIF?
   Investment: Brookings Ideas
• Encourage ―smart growth‖ in traditional
  regional centers through model building
  and zoning codes

• Maintain character of traditional

• Provide grants for infrastructure,
  downtown development
    State Revenue for Relief or
   Investment: Taxing Services
• Many states have antiquated sales taxes
  that focus on goods

• But personal consumption has shifted
  away from goods and toward services

• Federation of Tax Administrators catalogs
  168 services that states could include in
  sales tax
    State Revenue for Relief or
   Investment: Taxing Services

• Of the 168 services, Maine taxes only 24

• Connecticut taxes about half - 80

• If Maine included all services taxed by CT,
  would collect an additional $120 million a
    Major Services Taxed by CT
• All leases or rentals    • Telephone answering
• Cable/satellite TV       • Management
• Computer/data              consulting, Public
  processing services        relations
• Employment agencies      • Repairs (appliances,
• Private investigation      auto, furniture, etc.)
  and protection           • Landscaping
• Painting and lettering   • Janitorial
• Advertising, Graphic     • Photo studios
  Design                   • Health clubs
Address property tax unrest:
• Greatly improve property tax administration
• Consider relieving property tax through local
  option tax with state EITC offset to regressivity

• Make property tax relief more accessible and
• Possibly increase senior circuit breaker
Enhance incomes of residents; invest in ways
that enforce state’s strengths – for example:
• Improve higher education

• Enhance attraction of state to tourists and
  promote tourism

• Invest in technology research and development
  and encourage industry clusters

• Invest in infrastructure and encourage ―smart
Finance investment and additional property tax
• Increase bonding

• Tax some additional services under sales tax

• Eliminate inefficient tax breaks such as TIF and

• Increase lodging tax

Description: Maine Income Tax Forms document sample