LD 849, a new tax cut law could trigger a major credit rating downgrade. According to the nonpartisan fiscal office of the Maine Legislature, full implementation of LD 849 as written would cause losses to Maine schools, roads, bridges, and towns totaling over $1.2 billion per biennium. This is because this TABOR style measure lowers taxes irresponsibly, and would force the state to cut back needed programs to make up for lost tax revenue.
In times of emergency the state has a rainy day fund but this new tax law raids this fund to pay for lowing taxes to 4 percent. So without any back up revenue programs would have to be cut to balance the budget. This tax law was promoted as a law that would bring a flat tax rate to Maine. But people, schools, law enforcement . . . communities all rely on state government assistance. If their funding is cut they have to turn elsewhere for help. Municipalities would be forced to raise property taxes to make up for the lack of state funding. This grand plan to cut taxes actually shifts the responsibility of funding programs to local municipalities.
“We’ve heard loud and clear from the credit agencies that this bill puts Maine’s credit rating at risk,” said Rep. Seth Berry, who sits on the Legislature’s Taxation Committee. “This is nothing short of an unfair and unfunded tax shift onto middle class families who are already paying enough in property taxes.”
Analysis by Maine Revenue Services shows the Republican bill, would give an average tax reduction of only $1 to the bottom 20 percent of income earners. By comparison, the tax cut would give an average reduction of over $21,000 to the wealthiest 1 percent of Maine residents.
“We were even given strong warnings by Fitch about this very issue before the Republicans passed Sen. Courtney’s TABOR tax bill that ratchets down the income tax to 4 percent by raiding the state’s rainy day fund,” said Rep. Berry.
In September 2011, Moody’s pointed out that, “tax changes leading to revenue reductions leave [Maine] vulnerable.”
“Since the LePage administration, all three of the major credit rating agencies have warned Maine that our current budget and tax policies put the state at risk for higher interest rates and lower investor confidence,” said Mark Sullivan, of the Maine Center for Economic Policy. “Massive tax cuts and other changes to our state tax policies will widen revenue gaps, deplete reserves and undercut our capacity to fund critical infrastructure needs.”
LD 849 was bullied through the legislature by Republican votes. No Democrat voted for the tax shifting law.