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Governor’s Address: Democrats’ Failure Now Means Big Hassles on Tax Day Next Year

Americans paid their 2017 federal and state income taxes this week. Filing taxes isn’t a pleasant or easy task, but the lack of action by Democrats in the Legislature will make filing a nightmare next year.

Maine’s tax laws, as those of most states, piggyback on the federal IRS code. This is called “tax conformity.” States conform to avoid having two sets of laws – one for federal taxes and another for state taxes.

Aligning the state to the federal tax code usually requires minor fixes. But because the federal tax reform was comprehensive, we must make changes in a way that does not increase Mainers’ taxes. This requires the Legislature to pass a conformity bill.

Unfortunately, the failure of leadership by Speaker of the House Sara Gideon has made it likely that tax conformity will not happen this year.

Not conforming will cause problems for every tax-paying person and business. Not conforming will break the links between the state and federal codes. For example, tax-related terms might mean something different in our law than in federal law. Not conforming will force businesses to keep two sets of books this year – one for federal laws and one for state laws.

To enforce our unlinked tax laws, the State must create a new tax bureaucracy, writing new regulations in time for families and businesses to do their taxes next year.The state will then hire dozens of employees at Maine Revenue Service to audit state and business income taxes separately from IRS audits.

By doing nothing, the Democrats risk placing the state in chaos next January when individuals and businesses start preparing their returns – with no regulatory guidance as to how they should file two entirely different sets of taxes.Without enough lead time, the tax software companies cannot update their software, making it even harder to file.

Nothing better illustrates the Democrats’ total incomprehension of economics and finance than their lack of urgency on this issue.This uncertainty hurts our economy and makes it harder to recruit good people and businesses to Maine.

Democrats should not tinker around the edges, changing the tax code under the guise of conformity, but in reality making tax changes that have nothing to do with conforming – but everything to do with collecting more of your hard-earned money.

I have told the Democrats that they must pass a bill to conform the tax code, and three things must be included to avoid a veto:1. We must ensure that there is no tax increase on Maine families; 2. We must ensure that there is no tax increase on Maine businesses; and 3. We must conform to the federal estate tax to encourage high-earners to stay or locate here in Maine.

I’d prefer to eliminate the estate tax, but I’m willing to compromise as long as we conform to the new federal code.

No matter how you prepare your taxes or whether you’re an individual or business, take note: filing your 2018 taxes will be an extraordinary challenge due to the lack of action by Democrats in the Legislature.

Thank you.

Paul LePage

Governor

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