Tax conformity important

If you are like most Mainers, you do not spend much time worrying about conformity between Maine’s tax laws and the federal tax code. You just take it for granted that the Legislature will do all that it can to keep our system of taxes simple and fair. This is the generally the case, as the Legislature, almost without fail, passes an annual conformity bill that aligns our tax laws to changes in the federal code so that we can continue to use the federal definitions of adjusted gross income and taxable income as the starting points of Maine tax returns.

The next step to maintaining the simplicity and fairness of Maine’s tax system is to align Maine’s tax laws to conform with changes included in President Bush’s tax cut, enacted last summer. The president’s tax cut saves taxpayers money on their federal returns and, if we fully conform, will reduce the taxes collected by the Maine Revenue Service by about $17 million over the next two years – a significant and deserved savings for Maine’s taxpayers as far as these two legislators are concerned.

We have planned for the impact that conformity will have on state revenues by including a revenue reserve of more than $12 million in the current budget. We put the money aside because conformity is standard practice, and we wanted to ensure that conforming would not disrupt the State’s budget.

The fiscal challenges we are facing in Augusta have some looking for gimmicks to cover the state’s $250 million deficit. One gimmick being discussed would be delaying conformity between Maine and federal tax laws and using the $17 million to help balance the state’s books. The House Republicans have taken the position that this is a gimmick we just cannot afford. Here are some of the reasons as outlined by the leadership of our caucus:

First, President Bush’s tax cut package includes common sense tax relief that Mainers deserve. The package helps make higher education more affordable by expanding deductions for student loan interest, creating a new deduction for higher education expenses, and establishing education IRAs. The president’s tax cut helps working parents cope with the high costs of childcare by expanding the dependent care tax credit. The package also offers new incentives for retirement savings by increasing contribution limits to IRAs. And finally, the president’s tax cut restores fairness in the tax code through an elimination of the marriage penalty and the death tax. We have already set the funds aside to pay for these savings, and without conformity, Mainers would be denied the full benefit of these tax reductions.

Second, failure to conform to the federal tax changes would make Maine’s tax laws more difficult to understand and enforce because we would no longer be able to use adjusted gross income as a starting point for Maine returns. Without conformity, doing your state taxes would be like using the owner’s manual from a Ford to try and fix a Chevy – they may have the same parts, but they are all in different places under the hood. On the plus side, the paper industry will benefit from all the paper we will need to print the forms and instructions explaining how to add federal deductions back into adjusted gross income in order to calculate the taxes owed to the state.

Finally, as the state with the highest state and local tax burden in the country, we must do all we can to ensure that we do not increase our tax burden even further in comparison to taxpayers in other states. Because most states will conform their tax laws to the federal changes, the taxpayers from away would be better off by comparison if the Legislature fails to act. The House Republican caucus has no interest in seeing Mainers get left behind because they have been deprived of the full benefits of the education, retirement, and childcare incentives included in the president’s tax cut program.

Despite the importance of conformity, the governor has suggested that we partially delay conformity to retain $7.5 million in state revenue. Specifically, the governor has proposed creating a new state death tax to recoup losses in revenues because of changes in federal tax policy and to not conform to a new $3,000 education tax deduction that encourages investment in education. While we appreciate the difficult position the governor is in, we are convinced that raising Maine’s taxes and the tax burden on Maine people is not the right approach.

Solving our financial challenges rest in getting state spending under control. Not conforming to the changes in the federal tax code is the kind of gimmick that is not going to get our financial house in order. Despite our concerns about conformity, the governor’s proposal is a good start point, and we stand ready to work with him and our colleagues to improve his budget to give the people of Maine the services they deserve at a price they can afford.

As always, we look forward to hearing your thoughts, concerns and ideas about the issues addressed in this column or any other state government matter. We can both be reached at the State House at 287-1440, or you can contact Rep. Duprey at 862-5785 or Rep. Ledwin at 989-4627.

Brian Duprey, R-Hampden, represents District 114. Mary Ellen Ledwin, R-Holden, represents District 116.