AUGUSTA — A conservative think tank says Gov. Paul LePage’s two-year budget contains a “subtle tax increase” that could be “detrimental to Maine’s taxpayers.”
The analysis by the Washington, D.C.-based Tax Foundation focuses on the governor’s plan to change the state’s income tax indexing to what’s called chained consumer price indexing. The proposed change, which would follow a two-year suspension of all indexing, essentially would leave people in higher tax brackets for a longer period of time, thus enabling the state to collect more income taxes.
In January, the Portland Press Herald reported that the change would raise the tax bill of the average Mainer by $39 over the next two years.
The Tax Foundation analysis, headlined “Maine Governor sneaks subtle income tax hike into budget; suspends funding to local governments,” was released Wednesday. It said suspending indexing for the next two years would bump some taxpayers into a higher tax bracket “even if their income is merely keeping pace with inflation.”
Tax Foundation economist Elizabeth Malm wrote that the lack of inflation adjustment also could push some taxpayers into the highest tax bracket.
“This is problematic because incomes haven’t risen in real terms — only nominally,” Malm wrote.
The analysis said the suspension of indexing could mean a person earning $40,000 a year would see a 3.6 percent increase in his or her total state income tax liability, even if the cost of living, as measured by the consumer price index, rises by only 2 percent.
The report said that the rates would increase even more when the “chained CPI” indexing goes into effect.
Michael Allen, LePage’s associate commissioner of tax policy, told the Press Herald in January that the chained CPI was a more accurate measurement of inflation than the cost-of-living index.
That contention has been echoed in Washington by debt- reduction hawks who champion chained consumer price indexing as a way of reducing the national deficit. It has been heralded as a deficit reduction tool by the conservative Heritage Foundation, the Simpson-Bowles deficit commission and the Committee for a Responsible Federal Budget.
Opponents argue that chained CPI is a regressive tax scheme that allows politicians to increase tax revenue without the exposure of raising rates.
Allen, with the state’s tax policy division, said the national talks about the indexing prompted the LePage administration to include it in its budget.
The organization was also critical of the governor’s plan to suspend municipal revenue sharing for two years. Citing U.S. Census statistics, the Tax Foundation said towns rely on the revenue stream for nearly a third of their spending.
During his State of the State address on Tuesday, the governor acknowledged that he was not fond of his budget, but that the only other way to balance the state ledger would be to cut education and social services programs.
Adrienne Bennett, LePage’s spokeswoman, said in a statement Wednesday that it was false assumption that suspending municipal aid would lead to property tax increases. The governor has said previously that raising taxes or finding efficiencies is a local choice.
Bennett did not address the indexing proposal specifically or the Tax Foundation’s assessment of it.
David Sorenson, spokesman for the Republicans in the Maine House of Representatives, said the suspension of indexing would be revenue-neutral because incomes have been flat since the recession.
Steve Mistler — 620-7016