A change in the wording of Question 1 on the upcoming November ballot has touched off a raging debate over how the measure’s proposed income tax surcharge would apply to married couples.
If passed, Question 1 would create a law that directs money to home care workers through a new income tax surcharge of 3.8 percent on gross income over $128,400. Mainers filing individual tax returns would only be taxed on wages and other income above the $128,400 threshold.
But what about married couples filing joint tax returns? Some tax analysts said they would only pay the surcharge on household income over $256,800 – double that of individual filers – but others said they would be subject to the same $128,400 threshold, saying it amounts to a marriage penalty.
The distinction is significant, and not just to the political groups lining up to endorse or oppose Question 1. There are about five times as many Maine households with joint incomes above $128,400 as there are individual filers in that tax bracket.
Mike Tipping, communications director of the liberal Maine People’s Alliance and one of the chief proponents of Question 1, said opponents of the referendum are trying to make it seem more difficult to understand than it really is.
“I think there’s been a lot of intentional confusion here,” he said. “Among the people who are looking at this there may be some confusion, but the law is very clear.”
‘AND FAMILIES’ ADDED TO QUESTION
The 12-page referendum describes different taxing mechanisms, as well as creating a board that would oversee a program to distribute the money raised by the new tax. Under the referendum, all wage income over $128,400 would be subject to an additional tax surcharge of 3.8 percent, split evenly between employer and employee. All other income over $128,400, such as income from investments, also would be taxed at 3.8 percent.
But the ballot question – what voters will see on the ballot when they vote in November – was distilled down to this:
“Do you want to create the Universal Home Care Program to provide home-based assistance to people with disabilities and senior citizens, regardless of income, funded by a new 3.8 percent tax on individuals and families with Maine wage and adjusted gross income above the amount subject to Social Security taxes, which is $128,400 in 2018?”
The “and families” part of the question was not there originally. It was added by the Maine Secretary of State’s Office based in part on feedback from the state Department of Administrative and Financial Services.
The department requested that the Secretary of State alter the wording to indicate that households earning income above $128,400 also would be subject to the 3.8 percent surcharge, but some tax experts said that reading of the referendum is wrong.
Aidan Davis, senior policy analyst at the nonpartisan Institute on Taxation and Economic Policy, wrote a letter to the Secretary of State’s Office on June 15 stating that the income threshold would be double for married couples filing jointly.
“We found the language of the initiative to be clear in describing that individual (not household) income would be subject to the tax,” Davis wrote. “Our read of the phrasing contained in the fiscal impact statement of the ballot measure led us to that same interpretation. The use of the word ‘individual’ rather than ‘household’ or ‘tax unit’ in that document made that distinction clear. And the distinction does matter.”
But not everyone agrees with that analysis.
Maine State Economist Amanda Rector issued a report Thursday indicating that married couples filing jointly would be subject to the lower income threshold, meaning their joint earnings above $128,400 would be subject to the 3.8 percent surcharge.
“As currently drafted, the proposal would also apply to all Maine households filing jointly, thus establishing what can be considered a ‘marriage penalty’ on couples whose individual income is less than $128,400, but whose combined income exceeds that level,” Rector wrote.
MORE CONTRADICTIONS
Garrett Martin, executive director at the Maine Center for Economic Policy, a liberal policy group, said Rector’s interpretation of Question 1’s impact on married couples filing jointly contradicts what other tax analysts have said.
The referendum is designed to tax Mainers only on income they earn above the amount subject to Social Security tax, which was $128,400 in 2018, he said.
“The real story regarding the analysis presented by the state economist is that it continues to perpetuate the incorrect interpretation of how the tax provisions of the referendum would work based on the intent of the law,” Martin said. “In short, the analysis is based on a flawed assumption about how the tax will apply to married couples.”
In her report, Rector indicated that couples could get around the $128,400 threshold by filing their income tax returns individually.
Citing an analysis by Maine Revenue Services, Rector stated in the report that the annual revenue estimate of $310 million from the Question 1 tax surcharge is based on a revenue estimate of $315 million, minus $5 million “due to married filing joint taxpayers changing their filing status to married filing single.”
AG’S OFFICE WILL WEIGH IN
According to Internal Revenue Service data based on Mainers’ federal tax returns from 2015, there were 73,460 returns from joint filers with combined incomes of $100,000 or more, but only 15,780 joint returns filed with combined incomes of $200,000 or more. That means getting a correct interpretation of the referendum’s income threshold for joint-filing households could affect tens of thousands of taxpayers.
David Heidrich, spokesman for the Department of Administrative and Financial Services, said department Commissioner Alec Porteous agrees with Rector that married couples filing individually each would get an income threshold of $128,400, for a combined $256,800 between them. However, he said married couples filing jointly would be subject to the lower, $128,400 combined threshold.
“Acceptance of this referendum by voters would establish a marriage penalty for dual-income households filing married joint returns,” Heidrich said, quoting Porteous.
Heidrich said the state’s estimate of revenue to be generated by the referendum is an indication that it incorporated the lower income threshold for married couples into its calculations.
“It’s interesting that when they launched the campaign, the Maine People’s Alliance was touting that it would raise $132 million,” he said. “And yet, just a few months later, it was actually $310 million because it applies to household income.”
Secretary of State’s Office spokeswoman Kristen Muszynski said the Maine Attorney General’s Office will issue the final decision on how the tax surcharge would be applied to married couples. That decision is expected to be issued in late September or early October, she said.
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