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1 Elizabeth Malm & Stephen J. Entin, Maine Governor Sneaks Subtle Income Tax Hike into Budget; Suspends Funding to Local Governments 1 (2013)

handle is hein.taxfoundation/ffdfgxz0001 and id is 1 raw text is: February 6, 2013 No. 356 Maine Governor Sneaks Subtle Income Tax Hike into Budget; Suspends Funding to Local Governments By Elizabeth Malm & Stephen J. Entin Last week, Maine Governor Paul LePage released his 2014-2015 biennial budget. Most of the tax-related items relate to changes in property tax programs (in the form of an increased homestead exemption for elderly taxpayers and changes to the state's Circuit Breaker program1), but the governor also called for the temporary suspension of municipal revenue sharing and a stealth increase in income taxes. Not only is the new income tax policy tacked on to the very end of the tax-related provisions in the budget briefing,2 it is also difficult to understand how the new measure will affect state residents if one is not well-versed in income tax indexing and inflation. The provision has two key parts: first, it suspends inflation indexing of the state income tax brackets for two years; second, it alters the manner in which the calculation is completed in subsequent years. The implications of this are that for 2014 and 2015, bracket levels will not be adjusted for inflation but instead remain at 2013 levels. After 2015, indexing will be done using what is known as chained CPI. The two changes together are expected to raise an additional $8.6 million over the biennium.3 The Two Year Indexing Suspension Inflation adjusting income tax bracket levels is important for taxpayers. When an income tax system does not adjust tax brackets for inflation, a phenomenon known as bracket creep can occur. Higher income can bump a taxpayer into the next tax bracket, even if that higher income is merely keeping pace with inflation. Maine's income tax statute even explains that inflation results in increasing the taxpayer's liability while the taxpayer's purchasing power has remained the same, or in some instances has decreased, requiring bracket adjustments to compensate for the impact of inflation.'' 1 The Circuit Breaker program is intended to grant state residents a partial refund (up to $1,600) for rent paid or property taxes paid on a primary residence. According to the state's Revenue Services website, nearly 200,000 Maine households qualify for a partial refund of property tax assessed and/or rent they paid in 2011. See Main Revenue Services, Maine Residents Property Tax and Rent Refund - Program Summary, _ / mdngo/evu/axkf}rumay.1n. 2Office of Governor Paul R. LePage, 2013 Supplemental Budget Briefing (Jan. 11, 2013), 3 id. at 17. ' ME. REV. STAT, tit. 36, § 5401,

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