LD 1495 “TAX REFORM” THE REAL FACTS

• Before one examines the new law there are two

terms that need to be defined. One is the
“marginal tax rate” and the other is the overall
“effective tax rate”.
• The marginal tax rate is the rate of tax one pays
on the last dollar of income earned, while the
effective tax rate is the total tax paid as a
percentage of a taxpayers total income.
• Under old Maine law there were five marginal
tax rates, 0%, 2%, 4.5%, 7% and 8.5%. The
impact of the various low tax rates is that more
than 75% of Mainers have an effective tax rate
of 3% or less under the old law according to the
Maine Revenue Services report.
Albert A. DiMillo, Jr. Retired Corp
orate Tax Director & CPA
 LD 1495 “TAX REFORM” THE REAL FACTS

• For example, under old Maine law a married

couple with two children that doesn’t itemize
deductions and with Maine income of $45,000,
would have paid $930 in tax or an effective tax
rate of 2.1%. Their marginal tax rate is 7% (60%
of Mainers earned less than $45,000 in 2008).
• The most important tax rate is the overall
effective tax rate because this really tells you
how much tax you pay. The 7% rate only tells
you what tax rate was paid on the last $3,950 of
the $45,000 in total income.

Albert A. DiMillo, Jr. Retired Corp

orate Tax Director & CPA
 LD 1495 “TAX REFORM” THE REAL FACTS

• Calculation of tax on married taxpayer with

two children, no itemized deductions and
income of $45,000 is as follows:
• $20,900 at 0% = $ 0
• $10,150 at 2% = 203
• $10,000 at 4.5% = 450
• $ 3,950 at 7.0% = 277
• Total $45,000 $903 2.1% tax rate

Albert A. DiMillo, Jr. Retired Corp

orate Tax Director & CPA
 LD 1495 “TAX REFORM” THE REAL FACTS

• Every proponent press release and

interview disingenuously reported that
Mainers will see the tax rate go down from
8.5% to 6.5%. The truth is less than 5% of
Mainers will see their marginal tax rate
drop from 8.5% to 6.5%.
• Actually LD 1495 replaces the old 0%, 2%,
4.5%, 7.0% and 8.5% income tax rates
with six tax rates of 6.5%, 6.85%, 8.0%,
8.35%, 8.5% and 10%.
Albert A. DiMillo, Jr. Retired Corp
orate Tax Director & CPA
 LD 1495 “TAX REFORM” THE REAL FACTS
• For the majority of taxpayers, LD 1495 cuts the top tax
rate at most from 7% to 6.5%, because 63% of Mainers
have a top marginal tax rate of 7% or less. Other higher
income taxpayers will see their top rate go down from
8.5% to 8%. However, in some cases LD 1495 actually
increases the 2% and 4.5% marginal tax rates under the
old law to 6.5% and the old law 7% marginal tax rate to
8% or from 7% to 10%.
• The 10% rate applies only to married taxpayers over age
65 with income from $55,000 - $58,000 and elderly
single taxpayers with income from $32,000 - $35,000, so
most would not quote the 10% tax rate without
qualification. But the proponents of LD 1495 never
mention that the drop in the top rate from 8.5% to 6.5%
applies to less than 5% of Mainers. Using this deceptive
approach, one could simply state that LD 1495 increases
the top tax rate from 8.5% to 10% and it would be true.
Albert A. DiMillo, Jr. Retired Corp
orate Tax Director & CPA
 LD 1495 “TAX REFORM” THE REAL FACTS

• LD 1495 eliminates the current Maine income tax

structure that includes deductions for exemptions and
the standard deduction or itemized deductions with tax
credits. Of the 42 states with an income tax, 32 states
allow itemized deductions like old Maine law before LD
1495, 8 states allowed no itemized deductions and 2
states allow limited itemized deductions. Under LD
1495, Maine would allow a limited tax credit that will
partially replace itemized deductions for taxpayers.
Accordingly, Maine will move to an income tax structure
like no other state. The limiting of itemized deductions
under LD 1495 results in large tax increases for many
middle-income taxpayers with high itemized deductions
(interest, property taxes, medical costs, contributions).

Albert A. DiMillo, Jr. Retired Corp

orate Tax Director & CPA
 LD 1495 “TAX REFORM” THE REAL FACTS

• Maine Revenue Services (MRS) issued a

report on the estimated impact of LD 1495 on
Maine taxpayers. The report illustrated that the
limiting of itemized deductions was the main
reason 82,000 taxpayers will average a net tax
increase of $446 and that 29,000 taxpayers
will have their income tax increase by $1,008
each. These tax increases funds the estimated
income tax cut of $32.3 million ($5,952 each)
for a group of 5,430 taxpayers with income
over $316,958.
Albert A. DiMillo, Jr. Retired Corp
orate Tax Director & CPA
 LD 1495 “TAX REFORM” THE REAL FACTS

• The MRS report estimates that LD 1495 will

save the 686,694 Maine taxpayers $46.2
million in 2010.
• The MRS report shows that a group of 4,545
taxpayers with income over $316,958 (about
2/3 of 1% of the 686,694 Maine taxpayers)
will receive in total, $28.0 million of the $46.2
million net tax savings for all Mainers or 60%
of the total. This group is receiving a $6,151
tax cut each or 12.4%, while all other
taxpayers are receiving a $27 tax cut each or
a 1.1% tax cut.
Albert A. DiMillo, Jr. Retired Corp
orate Tax Director & CPA
 LD 1495 “TAX REFORM” THE REAL FACTS
• The proponents argue that LD 1495 is more progressive
and point to the fact that the top 10% of taxpayers will only
get $16.5 million of the $51.9 million net tax savings and
that their percentage decrease in tax at 1.8% is less than
the average of all taxpayers of 2.8%.
• First what they don’t tell you is that the MRS estimates that
$5.7 million of the net $51.9 million net tax savings will not
be collected by low income taxpayers because they do not
file income tax returns and 50% of these non filers will not
file to get their $50 -$70 tax refund. Accordingly, the
correct net refund is $46.2 million not $51.9 million.
• Second within this group of 68,667 taxpayers, there are
4,545 taxpayers in the top 1% earning over $316,958 that
will get a tax cut of $28.0 million and that all the other
64,122 taxpayers IN THE TOP 10% will have a net tax
increase of $11.5 million.

Albert A. DiMillo, Jr. Retired Corp

orate Tax Director & CPA
 LD 1495 “TAX REFORM” THE REAL FACTS

Deceptive Math that equals $1.8 each

One Taxpayer gets $30 = $30

Three taxpayers get 0 = 0
Three taxpayers get 1 = 3
Three taxpayers get -5 = -15
Total $ 18
Average for group $1.80

Albert A. DiMillo, Jr. Retired Corp

orate Tax Director & CPA
 LD 1495 “TAX REFORM” THE REAL FACTS

• Because LD 1495 does not have inflation

adjustments until 2014 and because under old
Maine law as of May 2009, there were inflation
adjustments every year, the tax savings in 2010 of
$27 for 99.3% of Mainers would become an average
tax increase of $45 in 2013, assuming a reasonable
inflation rate of 2.5% per year in 2011-2013.
• In 2013, the lack of inflation adjustments will cause
the MRS estimate of a $46.2 million net tax cut to
Mainers to become about a $3 million tax increase.
The 4,545 taxpayers in the Group with income over
$316,958 will have a tax cut of $27 million, while all
other Maine taxpayers will have a tax increase of
$30 million.
Albert A. DiMillo, Jr. Retired Corp
orate Tax Director & CPA
 LD 1495 “TAX REFORM” THE REAL FACTS

• In 2013 assuming a 2.5% inflation rate in 2011-

2013, the so called “revenue neutral” tax reform
law will increase total taxes by about $55 million
over old Maine law. This results from about $8
million in increased sales taxes ($5 million on
Mainers and $3 million more on non residents),
about $32 million in increased income taxes
from the loss of the inflation adjustments to the
tax brackets for three years and about $15
million in income taxes from the loss of the
inflation adjustments to the standard deduction
for three years.

Albert A. DiMillo, Jr. Retired Corp

orate Tax Director & CPA
 LD 1495 “TAX REFORM” THE REAL FACTS

• Proponents of LD 1495 makes several

statements that are not true. They claim
that “Maine tax filers will have a tax
decrease of between $100 and $300 every
year.” The truth is 99% of Maine
taxpayers will see an average tax
decrease in 2010 of $27, but most will
have a tax increase in total for the four
years 2010-2013. See attached
examples.
Albert A. DiMillo, Jr. Retired Corp
orate Tax Director & CPA
 LD 1495 “TAX REFORM” THE REAL FACTS
• The Proponents claim that LD 1495 will “encourage
individuals to become Maine residents and provides
incentives for owners of small businesses that file as
individuals to locate in the state.” The truth is 99% of the
Maine’s most successful small businesses will have on
average a small tax increase under LD 1495, so
accordingly there is no real tax incentive to locate in
Maine.
• The MRS report estimates that the 61,805 taxpayers
with income from $106,974 to $316,958 will in total have
a net tax increase of $952,000 or an average tax
increase of $15 each in 2010. Less than 1% of Maine
small businesses earn more than $316,958.

Albert A. DiMillo, Jr. Retired Corp

orate Tax Director & CPA
 LD 1495 “TAX REFORM” THE REAL FACTS

• The top income taxpayers will get an 18%

income tax cut, while the average income tax cut
for all taxpayers is only 8.5%. Proponents of LD
1495 argue that the “small” amount of taxpayers
with a tax increase is justified to get tax reform.
The truth is a system to reduce income tax for
100% of Mainers could have been established
by just giving all taxpayers a flat 8.5% income
tax cut. Almost all taxpayers with income of up to
$400,000 will save less tax under LD 1495, than
if they received a flat 8.5% income tax cut. Most
taxpayers with income over $400,000, save
more under LD 1495 than a plan that just cut the
income tax by 8.5% for all taxpayers.
Albert A. DiMillo, Jr. Retired Corp
orate Tax Director & CPA
 LD 1495 “TAX REFORM” THE REAL FACTS

• LD 1495 includes an attempt to tax nonresidents

differently than residents by not allowing them the
household credit that residents get. The MRS report
estimates that more than $15 million of additional income
tax will be collected from non residents under the new
law as compared to the old law. However, the law will
likely be found to be unconstitutional under the Privileges
and Immunities Clause of the US constitution, which
prohibits a state from imposing higher tax rates or taxes
on nonresidents than it imposes on residents. The lost of
this tax revenue has not been included in any of the MRS
reports on the impact of the bill on total tax collections.
• Many non residents who under old law are paying an
effective income tax of 2% - 4%, will have their effective
tax increase to 6.5%. Accordingly, many will see their
income tax more than double.

Albert A. DiMillo, Jr. Retired Corp

orate Tax Director & CPA
 LD 1495 “TAX REFORM” THE REAL FACTS

Examples of the impact of LD 1495 on non residents under age 65

and no itemized deductions:
NON
NON RESIDENT
MAINE RESIDENT RESIDENT TAX AS % OF
STATUS INCOME TAX - 2010 TAX 2010 RESIDENT TAX

Married 2 $60,000 $ 1,775 $ 3,900 220%

Married 2 $40,000 $ 400 $ 2,600 650%

Single 0 $30,000 $ 1,038 $ 1,950 188%

Single 0 $20,000 $ 350 $ 1,300 371%

Albert A. DiMillo, Jr. Retired Corp

orate Tax Director & CPA
 LD 1495 “TAX REFORM” THE REAL FACTS

• To make up for the loss in income tax revenue,

the bill expands the 5% sales tax to the following
services:
• Amusement, entertainment and recreation, (but
not ski tickets and golf course fees) including
admission fees to theaters, movies, lectures,
festivals, amusement parks, water parks, race
tracks, carnivals, circuses, sports activities,
stadiums, amphitheaters, planetariums, animal
parks, petting zoos, aquariums, historical sites,
convention centers, miniature golf, billiard
parlors, go-cart courses and paintball.

Albert A. DiMillo, Jr. Retired Corp

orate Tax Director & CPA
 LD 1495 “TAX REFORM” THE REAL FACTS
• Admission fees charged for exhibitions such
as auto, boat, garden, animal or antique
shows
• Entertainment services provided by bands,
orchestras, disc jockeys, clowns, jugglers,
comedians, and children’s entertainers
• Installation, repair or maintenance of jewelry,
cameras, guns, furniture, musical
instruments, electronic and mechanical
equipment, lawn and garden equipment,
computer hardware and office equipment,
vehicles and appliances
Albert A. DiMillo, Jr. Retired Corp
orate Tax Director & CPA
 LD 1495 “TAX REFORM” THE REAL FACTS

• Tailoring, clothing and shoe repair

• Personal property services including dry
cleaning, laundry and diaper services,
embroidery and monogramming, car
washing, pressure cleaning and washing,
pet services, picture framing, house
cleaning, furniture and rug cleaning,
interior decoration, meal preparation,
butchering, art restoration, warehousing
and storage, moving services, vehicle
towing and boat mooring
Albert A. DiMillo, Jr. Retired Corp
orate Tax Director & CPA
 LD 1495 “TAX REFORM” THE REAL FACTS

• Increases the sales tax on:

• Candy and soft drinks from 5% to 8.5%
• On premise liquor service from 7% to 8.5%
• Meals and lodging from 7% to 8.5%
• Short term car rental from 10% to 12.5%

Albert A. DiMillo, Jr. Retired Corp

orate Tax Director & CPA
 LD 1495 “TAX REFORM” THE REAL FACTS
• Proponents of LD 1495 have deceptively stated that
Maine’s “meals and lodging taxes” are much lower than
other states and that raising these taxes will allow the
state to export the tax increase to out of state residents.
The truth is that while these statements are somewhat
true for lodging taxes, they are not true for the meals tax.
The MRS estimates that 68% of Maine’s meals taxes are
paid by Maine residents. In addition, Maine’s meals tax at
7% is not low as compared to other states.
Massachusetts just raised their meals tax from 5% to
6.25% and Connecticut’s tax is only 6%. Orlando
Florida's meals tax is 6.5%. These states have the same
meals tax rate as their general sales tax. While some
states have a small differential between their general
sales tax and their meals tax, Maine at 7% already has a
40% additional tax differential and an increase to 8.5% or
a 70% differential would put Maine in the small minority of
states.
Albert A. DiMillo, Jr. Retired Corp
orate Tax Director & CPA
 LD 1495 “TAX REFORM” THE REAL FACTS

• The new sales tax on services is unfair because it does

not treat all services the same.
• Why no tax on golf and skiing, lawyers, accountants and
other professional services?
• The sales tax will be a disproportional added
administration expense for small businesses.
• The sales tax on services will likely lead to more non
compliance with the sales tax laws, which is probably
why LD 1495 includes funding to hire 6 new sales tax
auditors by 10/1/09
• If reducing the income tax rate by about ½% is good for
business, why is increasing the sales tax by 5% not bad?

Albert A. DiMillo, Jr. Retired Corp

orate Tax Director & CPA
 LD 1495 “TAX REFORM” THE REAL FACTS

• Proponents argue that Maine’s income tax

is one of the highest in the US, while the
sales tax is below average. Based on the
2007 census data, this statement is
incorrect. The 2007 data ranked Maine’s
income tax collections as the 17th highest
based on its percentage of personal
income. Maine’s sales tax collected was
ranked 21st highest of all states and 15th
highest out of the 43 states with both an
income and sales tax.
Albert A. DiMillo, Jr. Retired Corp
orate Tax Director & CPA
 LD 1495 “TAX REFORM” THE REAL FACTS

Examples of the impact of LD 1495 on taxpayers aged 65 or

older with no children and no itemized deductions:

TAX DECREASE (INCREASE)

STATUS INCOME 2010 2011 2012 2013 TOTAL
Married $60,000 $(137) (190) (252) (293) $(872)
Married $50,000 $ ( 22) (58) (104) (145) $(329)
Married $40,000 $ ( 63) (98) (145) (186) $(492)
Single $35,000 $ (77) (108) (145) (177) $(507)
Single $30,000 $ (38) ( 58) (84) (105) $(283)
Single $20,000 $ (30) ( 41) (56) ( 67) $(194)

Albert A. DiMillo, Jr. Retired Corp

orate Tax Director & CPA
 LD 1495 “TAX REFORM” THE REAL FACTS
Examples of the impact of LD 1495 on taxpayers under age 65 with one
child and no itemized deductions:

TAX DECREASE (INCREASE)

STATUS INCOME 2010 2011 2012 2013 TOTAL
Married $70,000 $ 97 43 (15) (77) $ 48
Married $65,000 $ 74 20 (38) (99) $ (43)
Married $60,000 $ 51 (3) (48) (89) $ (89)
Married $50,000 $ 55 19 (20) (60) $ ( 6)
Married $45,000 $ 35 (1) (40) (80) $ (86)
Married $40,000 $ 14 (21) (61) (90) $(158)

Albert A. DiMillo, Jr. Retired Corp

orate Tax Director & CPA
 LD 1495 “TAX REFORM” THE REAL FACTS
Examples of the impact of LD 1495 on taxpayers under age 65
with no children and no itemized deductions:

TAX DECREASE (INCREASE)

STATUS INCOME 2010 2011 2012 2013 TOTAL
Single $40,000 $ 64 33 ( 1) (29) $ 67
Single $35,000 $ 42 11 (22) (49) $(18)
Single $30,000 $ 21 (10) (43) (60) $(92)
Single $25,000 $ 24 3 (20) (37) $(30)
Single $20,000 $ 8 (13) (35) (53) $(93)

Albert A. DiMillo, Jr. Retired Corp

orate Tax Director & CPA
 LD 1495 “TAX REFORM” THE REAL FACTS

Examples of the impact of LD 1495 on taxpayers under age

65 with itemized deductions:

Itemized Tax (Increase)

Filing Status Income Deductions 2010 -2013
Married 1 $200,000 $30,000 $( 737)
Married 1 $150,000 $25,000 $( 414)
Single 0 $100,000 $20,000 $(1,502)
Single 0 $ 80,000 $18,000 $(1,233)

Albert A. DiMillo, Jr. Retired Corp

orate Tax Director & CPA
 LD 1495 “TAX REFORM” THE REAL FACTS

Examples of the impact of LD 1495 on taxpayers under age

65 with itemized deductions:

Tax Decrease
Itemized (Increase)
Filing Status Income Deductions 2010 -2013
Married 1 $2,600,000 $33,500 $148,918
Married 1 $1,000,000 $33,500 $ 44,357
Married 1 $ 600,000 $40,000 $ 17,615
Married 1 $ 300,000 $40,000 $ (1,174)

Albert A. DiMillo, Jr. Retired Corp

orate Tax Director & CPA
• To get this slide presentation and backup
calculations and a tax calculator go to:

• www.mainedemocratstaxreform.org

Albert A. DiMillo, Jr. Retired Corp

orate Tax Director & CPA