Friday, March 7, 2014
AUGUSTA — Business groups on Monday praised $200 million in tax breaks that are part of Gov. Paul LePage's two-year budget.
Sawin Millett, commissioner of the Department of Administrative and Financial Services, told lawmakers Monday the state will likely pay nearly $30 million to the federal government following a ruling against the state on Friday.
A federal judge ruled that the state was too aggressive in applying for federal matching funds in the early 2000s, and as a result, the state is required to pay back the money, Millett said.
He's proposing that the money be taken from the state's rainy day and capital improvement funds, which now total a combined $35 million.
The committee asked him to find out more about a possible appeal or other ways to pay back the funds that would not require the state to nearly empty its reserves.
"This $200 million stimulus package is going to have a positive impact," said Christopher Hall, vice-president of the Portland Regional Chamber of Commerce. "It's a very powerful tool."
Hall represented one of many organizations that offered testimony before the Legislature's Appropriations Committee on the first day of public hearings on the state's $6.1 billion budget proposal.
Monday's testimony focused on tax changes offered by LePage. His proposal would lower the top income tax rate from 8.5 percent to 7.95 percent; raise the Maine estate tax exclusion from $1 million to $2 million; and conform Maine's tax code to federal guidelines with regard to purchases of new business property.
To pay for the tax cuts, the budget proposes several changes to teacher and state worker pension benefits, said Sawin Millett, commissioner of the Department of Administrative and Financial Services.
"The pension savings in this budget allows for taxes to be cut by $203 million over the biennium," Millett said.
Later this week, hundreds of state workers and teachers are expected to testify against the pension changes, which include freezing cost of living increases for three years for retirees; reducing the cap on increases after that from 4 percent to 2 percent; increasing the retirement age from 62 to 65 for new state employees and those with fewer than five years of service; and increasing from 7.65 percent of salary to 9.65 percent the amount that current employees are required to contribute to the retirement system.
The changes save the state $413 million over the next two years, Millett said, and would also reduce the state's long-term liability to the pension system by more than $6 billion.
The state has a current unfunded obligation to the retirement system of $4.4 billion, which must be repaid by 2028. Under the repayment schedule now in place, meeting this obligation would require more than $11 billion in total payments over the next 17 years, according to actuarial calculations.
Millett said while workers and retirees oppose the pension changes, they will also benefit from the tax cuts in the budget.
And while Millett and business groups gave the tax cuts high marks, the Maine Center for Economic Policy, a liberal think tank, said the cuts give the rich much better benefits than the poor.
"Where's the sacrifice that's being asked of Maine's wealthiest residents?" said Garrett Martin, associate director of the center.
The think tank estimates that the average income tax break for families that earn between $28,139 and $48,050 would be $83 in 2013. That jumps to $874 for those who make more than $199,783 and to $2,770 for those who earn more than $363,438, according to the center.
Other groups, such as the Maine Children's Alliance and Maine Women's Lobby, also testified in opposition to the tax cuts.
"These tax cuts, which primarily benefit the wealthiest Maine families, reduce our ability to invest in Maine's most vulnerable children," said Dean Crocker, executive director of the children's alliance.
When it comes to the estate tax, about 600 Maine estates are taxed under current law every year, according to Maine Revenue Services. The LePage proposal would lowers that number to approximately 175.
Carol Weston, state director of the free market advocacy group Americans for Prosperity and a former Republican lawmaker from Montville, said it's "naive" to think that the estate tax cut helps only the wealthy.
"Are the parents and children running a family-owned business or farm part of the super rich?" she said. "Their land and equipment may put the value of their assets at more than $1 million, but we all know that family works hard every day to keep the business running while earning enough to stay afloat."
She said the budget proposes a "modest change" considering the federal estate tax exclusion is $5 million.
David Clough, state director of the National Federation of Independent Businesses, said he wanted to "express strong support for relieving tax burdens on small firms."
He also said a $200 million package of tax reductions will have a psychological affect in the business community.
"It does send a signal to business owners that Maine gets the message," he said.