How will rebates help Maine? State to get $445M from stimulus plan

AUGUSTA – An estimated 500,000 Mainers will share about $445 million in economic stimulus payments under the package President Bush signed into law Wednesday, but how much of a stimulus that cash will provide in Maine is a matter of debate.

“If people go out and spend a significant portion of that $445 million, that will certainly help the state’s economy and help state revenues,” said Mike Allen, an economist and director of research for Maine Revenue Services.

But Allen noted that not every Maine rebate recipient is expected to use all of the cash to buy consumer goods that would help bolster the economy. He said some may stash it all in their savings account or pay off debt.

“Even if they use it to pay their oil bill, it will help the economy,” said University of Southern Maine economics professor Charles Colgan, who chairs the state revenue forecasting committee. “This is all money coming into the state.”

But he added that while the rebate money will help the state’s economy, it will be a gentle nudge, not a big push. He said the state’s total economy is about $40 billion a year, so the additional $445 million will not have a huge impact.

“It really depends on how much is spent and what it is spent on,” said University of Maine economics professor Jim Breece. “I would suggest if someone wants to have their check have the biggest impact on Maine, they buy Maine-made products.”

The experts agree the infusion of cash will have a ripple effect on Maine’s economy, as it will nationally.

The $168 billion package includes payments for some 20 million Social Security recipients as well as 250,000 disabled veterans who would not have qualified under the original proposal because they do not have earned income.

The package provides tax rebates of up to $600 for individuals and up to $1,200 for couples filing jointly with an additional payment of $300 a child. There is also a minimum payment of $300 for individuals who pay less than that in income taxes.

Payments under the package are reduced for individuals with adjusted gross incomes above $75,000 and couples with incomes above $150,000. The wealthiest taxpayers will not be getting a check.

Colgan said the forecasting group assumed passage of a stimulus package when it wrote its report in January. He said the addition of payments to seniors on Social Security will have a small impact on projections.

“Maine has slightly more seniors than on average in the rest of the country, so it will have a little bit more of an effect,” he said, “but not a big effect.”

And while the additional spending will have an impact on state revenues, it is not expected to be a big one.

“I expect little if any impact in ’08 and a little in ’09,” said Sen. Karl Turner, R-Cumberland, a member of the Legislature’s Appropriations Committee. “Every little bit helps, but this is not going to solve our budget problems.”

Rep. Jeremy Fischer, D-Presque Isle, the House chairman of the panel, agreed. He said he has been told that as much as $7 million in additional sales tax revenue might come to the state during the current two-year budget as a result of the stimulus.

“Any of the trickle-down tax revenues from the sales tax are not something we are counting on to balance the budget,” he said. “I think people need the money to pay for gas and their heating bills this winter. We don’t expect people will be buying a lot of new things with this money.”

The way the rebates are structured, they will not be taxed as income by either the state or federal government.

The package also includes items aimed at encouraging businesses to invest in new equipment to create more jobs. A business, for example, could immediately write off up to $250,000 in equipment on its federal tax return instead of spreading that deduction over a period of years.

Maine has not gone along with federal changes such as bonus depreciation and expensing for several years and is not expected to in this case either. That upsets business groups, which say companies have had to keep two sets of books while competitors in other states do not.

Allen said if Maine allowed the bonus depreciation, it would cost about $20 million over 2008 and 2009. He said to go from Maine’s current expensing cap of $25,000 to the $250,000 level would cost between $8 million and $10 million in lost revenue.

“I don’t see that as something we can afford,” Fischer said.

Turner said that even though the business community “has a point” in its complaint about Maine tax laws, he doubts many companies will make investment decisions based on the state’s not conforming to federal deductions.

“The big tax liability is on the federal side,” he said. “That is what will drive decisions.”

The checks are expected to start arriving in mailboxes in May.