Tax Relief and Upcoming Congressional Elections
As the campaigns for federal offices in Maine start to heat up leading to the November elections in 2008. Lets reflect on an important campaign item that the 2008 election will be critical to its fate–the expiration of the 2001, 2002, 2003 and 2004 tax relief packages in 2010. Thanks to complex federal budget rules, these tax relief packages are set to “sunset” in 2010 which means the tax code will revert to its pre-2001 status. For almost all Mainer’s this will mean a significant federal tax hike.
Let’s review some of the provisions:
1) Reductions in the marginal tax rate. Marginal tax rates were cut across-the-board and a new, low tax bracket of 10 percent was created. To put these rate cuts into perspective–the top marginal rate fell from 39.6 percent to 35 percent, or 4.6 percentage points. That is the equivalent of cutting Maine’s top marginal rate by more than half to 3.9 percent from 8.5 percent. Imagine the uproar if the reverse was proposed in Augusta where they wanted to raise the state rate to 13.1 percent from 8.5 percent. That’s exactly what will happen, though at the Federal level, if the sunset is not extended, preferably indefinitely.
2) Reductions in the capital gains rate.
2) Increase in the child tax credit to $1,000 from $500
3) Marriage penalty relief.
4) The federal estate tax elimination and, subsequently, the elimination of many state estate taxes. Not in Maine of course.
5) And a whole host of other tax provisions from increased IRA contribution limits, increased adoption credits, AMT relief, child day care credits, increase in the dependent care tax credit, etc.
Not all of these provisions are good tax policy, such as all the tax credits, but it puts money back into the pockets of taxpayers which is the most important consideration. However, the Congressional Budget Office forecasts that between 2010 and 2011, federal individual income tax revenue will increase by $205 billion–mostly due to the expiring tax relief provisions. Maine’s economy is already suffering from its own home-grown tax burden, we certainly do not need the federal government piling on new taxes as well. Keep this in mind come November 2008.