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Democrats in Maine House Prevail on Tax Bills
04/02/2013   Reported By: A.J. Higgins

Republicans in the Democratically-controlled Maine House today failed to get their way on two tax bills: One would have cut capital gains taxes for many wealthier Mainers. The other would provide a tax credit for lower- and middle-income residents. Democratic leaders described today's outcome as a big win for Maine's working families. But as A.J. Higgins reports, they could have trouble finding enough money in the budget to fund their tax credit proposal.

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The capital gains tax cut would cost the state $46 million, and the Democrats' tax credit proposal $35 million - a tough sell in tight budget times.

Neither bill has much chance of being funded with whatever money remains after the Appropriations Committee approves the state budget later this spring. But that's not likely to stop Republicans and Democrats from using aspects of today's House debate on the two measures for their 2014 campaigns.

Besides, as Republican Rep. Richard Malaby of Hancock pointed out, there's never been a better opportunity to consider lowering the rate on capital gains. "Right now is kind of the perfect time to decrease rates," Malaby said.

Republicans like Malaby argued that cutting taxes on capital gains would actually bring more revenue into state coffers because reducing the rate would cause many investors to sell.

Malaby told House members that Maine has the eighth highest capital gains tax rates in the country. His bill would reduce taxes on capital gains held for more than a year to 3 percent. Current tax policy allows those assets to be taxed as high as 8.5 percent. Malaby says he timed the proposal to coincide with federal tax changes.

"The rate reduction proposed in this minority report is meant to offset the 8.8 percent increase recently enacted at the federal level, a five percent increase in the capital gains rate from 15 to 20 percent, and a 3.8 percent Medicare tax increase - part of the Affordable Care Act," Malaby said.

Malaby was supported by Rep. Larry Lockman, an Amherst Republican, who said it made more sense to redirect those tax collections on capital gains to the person who made the investment in the first place.

"If you reduce the capital gains tax rate and you allow people to keep more of their investment income, static scoring assumes that they're going to stuff that money in a mattress -- that's not going to happen," he said. "They're going to spend that money or invest that money. So if they build a new deck on the house, they're going to be buying stuff at the hardware store, paying sales tax."

Democrats, such as Rep. Nate Libby of Lewiston, said the bill simply wasn't fair. He said that a single worker earning about $35,000 a year is taxed at a rate of 7.95 pecent.

"Take another individual who earns the same amount of money in a year realizing capital gains who's not getting up and going to work every day, we would be taxing them at a rate of three percent - less than half," Libby said. "So I ask men and women of the House: Is that fair tax policy?"

After defeating the Republican bill in an initial 91-55 vote Democrats went on to take up their bill that would increase the current state earned income tax credit for low-income individuals and middle-income families to 10 percent of the federal earned income tax credit. The money would be refunded to those taxpayers by the state.

Rep. Adam Goode, a Bangor Democrat, said the tax credit plan would bring Maine more into line with the rest if the country.

"Twenty-four states have their own earned income tax credit to compliment the federal policy. Maine is one of just three states that does not allow their credit to be refundable," Goode said. "A wide majority of states with their own credit refund at 10 percent to 40 percent of the federal level. When you look at states using an earned income tax credit to lift workers out of poverty, Maine is an outlier."

Republicans opposed the bill, claiming that while they liked the idea of tax credits, Maine could not afford the price tag of $35 million. The bill received initial approval in the House in a 91-52 vote.



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