MAY, 2012 – In a vote of 75-63, the Republican-held Maine House vote passed a bill that ratchets down Maine’s income tax rate by using one-time money to make ongoing cuts.
The bill and the nearly $500 million in unfunded tax cuts for the wealthy passed by the GOP in the past eighteen months has caused concern among the credit rating agencies. A down grade of Maine’s AA+ credit rating could result in higher interest rates and loss of investor confidence.
“We’ve heard loud and clear from the credit agencies that this bill puts Maine’s credit rating at risk,” said Rep. Seth Berry, D-Bowdoinham, who has opposed the TABOR like measure that threatens funding for schools and towns across the state. “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.
The original proposal used 20 percent of one-time surpluses that would typically be put in the state’s reserve funds to make permanent cuts, without paying for them in future years. The surplus only pays for the cuts in the first year. In February, Fitch Ratings Inc., one of the most influential credit rating agencies, changed its outlook for Maine’s creditworthiness from “stable” to “negative,” putting the state on notice that our high AA+ rating is in danger of being downgraded. Fitch warned that their rating “is dependent upon the state’s ability to … meaningfully rebuild reserves depleted during the recession.” Moody’s Investor Services and Standard & Poor’s, the other two major credit rating agencies, downgraded the outlook from “stable” to “negative”.
In an effort to make it more palatable to the credit agencies, Republican lawmakers on the Appropriations committee introduced an amendment that would put more money in the state’s rainy day fund before allowing the ratchet down to go into effect.
Democrats and leading Republicans in the LePage Administration shared concerns that the bill uses one-time money to pay for ongoing cuts, and could impact the state’s bond rating. Democrats have said this is as irresponsible as taking on a car payment after winning a $100 on a scratch ticket.
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.