Maine Income Tax Forms

Document Sample
Maine Income Tax Forms Powered By Docstoc
					     Best Practice
Fiscal Policies for Maine
          Iris J. Lav and Karen Lyons
     Center on Budget and Policy Priorities
                  www.cbpp.org
   MECEP Annual Tax and Budget Conference
                  Augusta, Maine
                 January 8, 2007
     Strengths: Natural Beauty
• Maine is 32nd in tourism employment as share of
  workforce
• 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
  $3,000
  $2,000                      $1,373
  $1,000                                $716   $634

     $0
            CT        MA        RI       VT     ME
       Maine Debt Service Well Below
       5% of General Fund Revenues




Source: Maine Office of the Treasurer http://www.maine.gov/treasurer/debts_bonds/debt_summary.html
   Less Regressive than Most States
                                          State and Local Taxes (2002)
                                                                                   Maine
                            12
                                                                                   US Avg

                            10
for non-elderly taxpayers
 Shares of family income




                             8


                             6


                             4


                             2


                             0
                                 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
  dropped
      Taxes = Strong Services
• Ranks best in country:
  – Adults with health insurance
  – Low-income adults under 65 with health
    insurance
  – Parents with health insurance

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

• Has 6th lowest poverty gap in reading and math
  proficiency

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

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

• Relatively low incomes of
  residents
                  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
  reassessment
 Abysmal Assessment Practices
• In many municipalities, no consistent valid
  method for updating valuation between
  assessments

• 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
  residents

• 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
  allocation
  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,
              but….
• One of most generous circuit breakers in
  country

• 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
    income
  – 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
  months
• 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
    problematic
  – Families with child-raising expenses and others may
    also have trouble paying

• If do more for seniors, important to relate to
  income
  – 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
  Hawaii
• A low-rate sales tax option for cities could
  help
• 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
  refundable)
    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
    farming/fishing/forestry

• 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
     jobs
   – 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
  communities

• 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
  year
    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
                   Summary
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
  transparent
• Possibly increase senior circuit breaker
                 Summary
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
  growth‖
                 Summary
Finance investment and additional property tax
relief:
• Increase bonding

• Tax some additional services under sales tax

• Eliminate inefficient tax breaks such as TIF and
  ETIF

• Increase lodging tax

				
DOCUMENT INFO
Description: Maine Income Tax Forms document sample