Maine’s delegates see flaws in tax fix Federal proposal would hurt Mainers, they say

AUGUSTA – There is an old saying that nothing is certain but death and taxes. Add another certainty, say the four members of Maine’s congressional delegation: Any proposal to reform taxes will be controversial.

“Frankly the president’s tax reform commission report has landed with a dull thud,” Republican Sen. Susan Collins said. “It raises a lot of concerns, particularly to those in the Northeastern states.”

President Bush created the bipartisan tax reform commission last January and charged the panel with crafting a better federal tax system. It has recommended elimination or limits on some of the most popular tax breaks like the deductibility of mortgage interest and employer provided health insurance.

“This is supposed to be tax reform and simplification,” Collins said. “I have not seen any simplification proposals. This just seeks to make reforms by trading one set of deductions and credits for another.”

Fellow Maine Republican Sen. Olympia Snowe agrees the proposals raise more questions about fairness than they answer. She said the provision capping the deduction an employer can take for health insurance premiums is particularly troubling.

“This could increase the cost of health insurance for many families,” Snowe said. “And with 44 million Americans currently without health insurance, this might not be the most prudent approach to dealing with the crisis of the uninsured.”

Chris Hall, vice president of the Maine Chamber of Commerce shares that concern. He said many employers in Maine would be forced to re-consider whether to offer health insurance if they could not fully deduct the cost of the premiums.

“This would be devastating to some employers,” he said. “Many are struggling to continue to offer coverage, and this would mean some simply could not afford to continue coverage for their workers.”

Democratic Rep. Tom Allen said there are so many major changes proposed in the report that it will face difficulty in Congress. He said President Bush has yet to indicate his level of support and probably will not until he outlines his goals in the January State of the Union speech to Congress.

“The panel wants to eliminate the interest deduction on home mortgages and remove the ability for you to deduct your state and local taxes,” he said. “That is very unsettling to many.”

Allen said it appears Maine would be one of those states that would be hurt the most from the elimination of the deductibility of state and local taxes. With Maine’s state and local combined tax burden one of the highest in the country, loss of the ability to “write off” those taxes on the federal income tax would hit Mainers disproportionately harder than those in many other states.

“The red states – the west and the south – are the states that get the most federal assistance, and they are the ones with lower taxes,” he said. “It is the blue states – like Maine and other northeastern states – that will be most affected by this.”

The panel wants to use the “savings” from eliminating those tax breaks to, among other things, repeal or reduce the alternative minimum tax. The so-called AMT was added to the tax code as a way to make sure that the wealthiest Americans did not avoid paying taxes through the use of various tax breaks and shelters. But the AMT is beginning to hit more middle income households and is projected to reach lower middle income families in a few years.

Rep. Mike Michaud, a Democrat, said he applauds the commission’s goal of creating a fairer and simpler tax system, but he agrees with Collins that what has been proposed certainly is not simpler and that fairness is a subjective judgment.

“We now need to take a very close look at how some of the panel’s specific recommendations will affect Mainers,” he said. “For example, the proposal to consolidate the Child Tax Credit, Earned Income Tax Credit, and Standard Deduction into a Family Credit available to all taxpayers. The existing credits have been important tools to help many Mainers make ends meet and provide for their families, and we must ensure that this basic tax fairness is not diminished.”

Michaud said a recommendation to consolidate tax brackets and tax rates does raise concerns. He said some of the draft proposals would favor the wealthy at the expense of the poor.

“The [Bush] administration’s recent tax cuts have all been focused largely on the wealthiest people and corporations,” he said. “I want to make sure that tax relief is more focused on working people and the middle class.”

Maine’s delegation members said they do not believe any of the commission’s long-term tax proposals will be considered as Congress deals next month with a separate tax measure to extend some tax breaks and create others.

“We have to recognize that we need to overhaul and improve our tax structure, so we need to realize that as we look at the tax reconciliation bill,” said Snowe. “But we should not go too far down the road making long-term tax changes in that package when we know this larger effort is out there.”

Collins agreed it is very unlikely any of the long-term proposals will be considered this year. And how serious they are considered at all by Congress, even in 2006, will depend on the president, she added.

“I have not heard much from the president on these proposals,” Collins said. “They would need his strong backing to get consideration because many of them are so controversial.”