Tax talk
Employers to see UI tax hike
- Cost to rise $10 per worker annually
- Increase far less than in 2009
Maine employers will see a tax increase at the first of the year to keep the state’s unemployment trust fund solvent.
The cost to employers will rise from about $93 per worker, per year to about $103 per worker annually, according to Labor Commissioner Laura Fortman. Overall, the hike will cost employers about $14.5 million more in tax payments.
Maine is in far better shape than the 35 states already borrowing from the federal government because their funds have been exhausted, Fortman said. That borrowing comes with interest and federal surtaxes on employers to return state funds to solvency. “If we had to borrow, the tax increase would be a lot larger,” she said.
Fortman credited a compromise adopted during Gov. Angus King’s administration for making Maine’s trust fund among the most solid in the nation. A bipartisan group worked with business representatives and union leaders to craft the current system, which assesses taxes on employers based on a complex formula that takes into account an employer’s use of the system. “We have been able to keep our fund solvent and pay benefits,” she said. “That’s better than many states.”
The formula for setting rates starts with the balance in the trust fund as of Sept. 30 each year. This year, the balance totaled $290.6 million. By the end of this year, $210.3 million in state benefits will have been paid, a high enough level of payouts to trigger an increase in the taxes on employers, Fortman said.
“There have also been considerable benefits paid for with federal funds,” Fortman said. In fact, more has been paid through the various emergency and extended benefit programs passed by Congress than under the state system. Department of Labor estimates the feds will have contributed $213.6 million by year’s end.
Peter Gore, vice president of the Maine State Chamber of Commerce, said any increase in taxes will hurt employers, but noted that this year’s increase is significantly less than the $54 million rate hike imposed last Jan. 1. “Is the business community happy the [unemployment insurance] tax rate went up? No,” he said. “Could we be a lot worse off? Yes.” Most employers believe the way to restore the fund is to get the economy growing again, so as the number of workers increases, more is paid into the UI trust fund, Gore said.
David Clough, Maine director for the National Federation of Independent Business, said any tax increase on employers will hurt the state’s economic recovery. “This takes money out of the pockets of business owners that could be used to create jobs,” he said.
More than 10,000 Mainers a week are receiving regular unemployment benefits from the state trust fund and an additional 15,000 a week are getting some type of additional federally funded benefit.
Tax breaks exceed state spending
- Exemptions top budget by $1B
- BETR targeted for review
Maine spends more in tax breaks, credits and exemptions every year than it spends on programs in the state budget, according to a study conducted by several state agencies at the direction of the Legislature. Tax expenditures, as they are called, are estimated at $6.6 billion for this two-year budget period, a billion dollars more than state spending.
“Maine currently has 141 personal and corporate income and property tax reimbursement programs and 133 sales tax and excise tax exceptions or preferences,” said Finance Commissioner Ellen Schneiter, who chaired the working group that included representatives from Maine Revenue Services, the State Planning Office, the Department of Economic and Community Development and the Department of Labor. The charge from lawmakers was to review all of the state’s tax expenditure programs and recommend a process to ensure all are regularly reviewed for their effectiveness.
The working group focused on economic development tax breaks, saying many other tax expenditures don’t warrant detailed review because they are unlikely to be repealed, Schneiter said. “There are many of these exemptions, like sales tax on food or prescription drugs, that we didn’t think you would want us to spend a lot of time looking at,” she said.
The group indentified 11 programs related to economic development for further analysis and review. Schneiter said the programs, ranging from the Business Equipment Tax Reimbursement program to various tax credits that provide breaks to as few as a five taxpayers, should be targeted for regular, comprehensive review by the Legislature. “These are all important programs that are in our economic development toolbox,” she said, “but we need to make sure they are effective and that we are providing oversight to make sure they are effective.”
The group is recommending the state adopt the same type of analysis used in the state of Washington to measure effectiveness of programs and report on them at least every four years.
Schneiter told members of the appropriations committee that she found several studies raising doubt about whether any of the various tax incentive programs across the country provide the “tipping point” that results in a business locating in a state. “It’s more the psychology that we have these incentives in our tool box to offer,” she said.
Taxes dominate lame duck session
- Collins proposes indexing AMT
- Michaud, Pingree support Obama plan
If Congress fails to act on the Bush tax cuts set to expire on Dec. 31, Maine taxpayers will pay upwards of half a billion dollars more in higher federal taxes, Maine tax officials estimate.
“We must act, or taxes will go up,” said U.S. Sen. Susan Collins. “We talk about the tax cuts expiring, but it really means that taxes will go up.”
President George W. Bush lowered tax rates in 2001 and 2003 and President Obama lowered others as well to spur economic growth in the recession. All of those lower rates expire Dec. 31 unless Congress acts to extend all or some of them.
Collins is proposing that all of the expiring tax cuts be extended for two years, that the alternative minimum tax be indexed to inflation for a year and that lawmakers pass some level of the estate tax, which lapsed this year.
The alternative minimum tax was originally passed to make sure the very wealthy paid some federal income tax. But it has not been indexed to inflation, so every year it affects more taxpayers. One study indicates it will start affecting some families with as little as $36,000 a year in income. Indexing the tax for the 2011 tax year will cost $66 billion.
U.S. Reps. Mike Michaud and Chellie Pingree have supported President Obama’s plan that would allow tax increases only for those families making more than $250,000 a year.
U.S. Sen. Olympia Snowe said Congress should extend all of the tax breaks set to expire, even though she opposed some of the cuts when they were first passed.
Mal Leary runs Capitol News Service in Augusta. He can be reached at editorial@mainebiz.biz. Read more of Mal’s columns here.
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