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Governor’s Address: Conforming to the Federal Tax Code is the Right Policy for Maine

The federal tax cuts will provide about $1 billion in tax relief this year and next to Maine families and businesses.

To make things easier for taxpayers when the federal government changes the tax code, each state generally adopts that federal code. Adopting the same code at the state level is called “tax conformity.” It simplifies how Mainers pay income and business taxes.

Most of the time, tax conformity requires minor fixes that are relatively easy for the state to adopt. This year, because the federal tax reform was long overdue, we must determine whether we will conform our tax laws to the significantly revised federal code.

The tax code is confusing enough. Having two sets of laws for federal and state tax returns will create problems.

If we do not conform, Maine businesses will have to keep two sets of tax books. Tax administrators will have to comply with different state and federal tax rules. This is a giant headache for Maine businesses.

Not conforming will also require the state to create a new tax bureaucracy. We’ll need to create our own regulations and then hire new state employees to audit state income and business taxes separately from IRS audits. Folks, we don’t need to do this.

To avoid these problems, I’ve introduced the “Conformity and Family Tax Relief Act” to conform our tax laws to the updated federal code.

Conforming Maine to the federal code, however, will result in Mainers paying additional income tax that you are not currently paying. That’s not right. The last thing I want is for Mainers to pay more taxes.

Therefore, my bill makes an important technical change to Maine tax law that avoids a tax increase.

For small businesses, my bill provides a tax cut of nearly $20 million in the current biennium. For corporations doing business in Maine, the bill mitigates a tax increase caused by conformity by reducing our corporate income tax rate from 8.93 percent to 8.33 percent.

I also propose more than $200 million in tax reductions over the next three years. We will return much of the tax revenue surplus to Maine taxpayers.

Most of this tax relief is through a new $500 child and dependent tax credit. Coupled with my proposal to provide $30 million per year in student debt relief, we will encourage recent college graduates to remain in our state and raise their families here.

Yet, liberals in the state Legislature don’t want you to keep your money. They see this as a windfall, even though their counterparts in Congress called this tax savings nothing more than “crumbs.”

If you keep the savings, they say it’s “crumbs.” If they get to spend the savings, they call it “revenue.”

My bill maintains simplicity in our tax structure, and it returns surplus tax revenues to Maine families. Let your legislators know you want to keep it simple. Let them know you want to keep your money. You’ve earned it.

Thank you.

Paul LePage

Governor

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