November 17, 2012

'Fiscal cliff' threatens every Maine taxpayer

Fewer jobs, higher taxes, less help for the jobless and education spending cuts could be result of Washington budget impasse

By Kevin Miller
Staff Writer

WASHINGTON -- It was a last-second deal to avoid default and spur political leaders to action.

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President Barack Obama, right, accompanied by House Speaker John Boehner, R-Ohio, speaks to reporters in the Roosevelt Room of the White House in Washington. The two leaders are trying to forge a compromise to avoid the "fiscal cliff" -- a combination of factors that threaten to invoke automatic tax increases and spending cuts on Jan. 1, which many claim would be ruinous to the nation's fragile economy.

AP photo

Here is a sampling of potential spending cuts that that could affect Mainers. The dollar figures are the national totals.

* Department of Defense, general military programs operations and maintenance: $3.9 billion

* U.S. Navy, operations and maintenance (non-exempt): $4.3 billion

* U.S. Navy, shipbuilding and conversion: $2.1 billion

* U.S. Coast Guard, systemwide: $440 million

* U.S. Customs and Border Protection: $813 million

* National Oceanic and Atmospheric Administration (operations, research and facilities): $257 million

* Low Income Home Energy Assistance Program: $285 million

* Agricultural Disaster Relief Fund: $104 million

* Rural Housing Service Rental Assistance Program: $74 million

* Special Supplemental Nutrition Program for Women, Infants and Children: $543 million

* Environmental restoration of former defense sites: $31 million

* Special education services: $1 billion

* Federal student financial aid: $140 million

* U.S. Housing and Urban Development, Rental Assistance programs: $1.5 billion

* U.S. Fish and Wildlife Service, Resource Management: $105 million

* National Park Service, park operations: $183 million

But 13 months later, taxpayers and businesses in Maine and across the country wait as Congress and the White House negotiate about how to avoid going over the dreaded "fiscal cliff."

Without some sort of agreement in Washington on reducing the federal deficit, more than $600 billion worth of higher taxes and across-the-board spending cuts will kick in for the coming year on Jan. 1.

Although it's a manufactured crisis, Mainers will face real consequences if the cuts and tax increases take effect.

Nearly every taxpayer will give a bigger chunk of his or her paycheck to the government. Federal programs that support schools, pay for special education and help low-income Mainers heat their homes or feed their families could lose funding. And thousands of jobs in the defense sector -- from shipbuilders to munitions parts suppliers -- plus thousands more in other fields could be affected or even disappear.

"If nothing is done, it would put us back below where we were at the depth of the recession (in Maine) in terms of jobs," said Charles Colgan, an economist at the University of Southern Maine, who believes losses in the range of 6,000 to 10,000 jobs are realistic.

Here are five things Mainers need to know as we head toward the fiscal cliff.

You would pay more taxes. Yes, you.

Much of the partisan debate about how to avoid the cliff has focused on whether to increase taxes on families earning more than $250,000 and individuals making $200,000 or more -- an income bracket that applies to fewer than 10,000 Mainers.

But the reality is that, unless Congress acts, virtually every family and individual taxpayer will pay more.

The tax rate for every income bracket will rise between 3 and 13 percent, and a temporary payroll tax reduction will end, resulting in a 2 percent increase.

Additionally, child tax credits would drop from $1,000 to $500, the capital gains tax rate would jump from 15 to 20 percent, and some married couples would go back to paying more as a couple than they would individually, the so-called "marriage penalty."

Overall, Mainers would pay an additional $1.4 billion in taxes next year as several major tax categories increase, according to an analysis conducted this summer by Maine Revenue Services, the tax arm of state government. That's a significant tax increase for a state like Maine.

Mainers' total personal income is estimated at roughly $54 billion, which means the changes in the federal income tax, the payroll tax, the Alternative Minimum Tax and the estate tax would effectively result in a 2.6 percent average reduction in take-home pay statewide.

"So there's no surprise most economists believe if these cuts went through combined with sequestration that it would put the U.S. economy back into recession," said Mike Allen, associate commissioner for tax policy. And, he said, Maine's economy would likely follow suit. "It's too much all at once."

How much more you will pay depends largely on how much make.

A Maine "tax family" -- which is either an individual or a married couple filing jointly -- earning less than roughly $14,250 a year would pay about $262 more a year under the above scenario.

Those earning between $27,300 and $35,200 would see their federal tax bill rise $1,142.

And those with incomes of between $63,000 and $83,800 would pay an additional $2,518, according to the state's estimates.

And Maine's top 1 percent? Those earning in excess of roughly $355,000 would have to shell out another $24,800 next year.

(Continued on page 2)

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