Time To Pay Their Fair Share:

Maine Cant Afford to Extend the Bush-era Tax Cuts for the Wealthy Few

July 2012

ACKNOWlEDGMENTS
Tax data in this report has been prepared by Steve Wamhoff at Citizens for Tax Justice. Budget data has been compiled by Kate Gallagher Robbins, Senior Policy Analyst, Julie Vogtman, Senior Counsel, and Abby Lane, Policy Fellow, at the National Womens Law Center. The report was drafted by Frank Clemente, Campaign Manager, Americans for Tax Fairness and Joan Entmacher, Vice President for Family Economic Security, National Womens Law Center. State reports were compiled by Bill Gordon, Brian Salkin and Morgan Currier at Americans for Tax Fairness. The reports design is by Deepika Mehta.

AmericAns for TAx fAirness, www.AmericansforTaxfairness.org Americans for Tax Fairness is a diverse campaign of more than 150 national, state and local organizations united in support of a tax system that works for all Americans. It has come together based on the belief that the country needs comprehensive, progressive tax reform that results in greater revenue to meet our growing needs. This starts by ending the Bush-era tax breaks for the richest two percent and by making critical investments that create and sustain jobs while taking a balanced approach to addressing Americas fiscal challenges.

ciTizens for TAx JusTice, www.ctj.org Citizens for Tax Justice, founded in 1979, is a 501 (c)(4) public interest research and advocacy organization focusing on federal, state and local tax policies and their impact upon our nation. CTJs mission is to give ordinary people a greater voice in the development of tax laws. CTJ fights for fair taxes for middle and lowincome families; requiring the wealthy to pay their fair share; closing corporate tax loopholes; adequately funding important government services; reducing the federal debt; and taxation that minimizes distortion of economic markets.

nATionAl Womens lAW cenTer, www.nwlc.org The National Womens Law Center is a nonprofit organization working since 1972 to expand opportunities and eliminate barriers for women, with a major emphasis on family economic security, education and employment opportunities, and womens health and reproductive rights.

Time To Pay Their Fair Share: maiNe

Time To Pay Their Fair Share:

Maine Cant Afford to Extend the Bush-era Tax Cuts for the Wealthy Few
AT ThE END oF 2012, tax cuts signed into law by President George W. Bush that disproportionately benefit the wealthiest Americans will expire. At the same time, improvements in the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) for working families that were enacted as part of the 2009 American Recovery and Reinvestment Act also will expire. Congress must decide whether to begin to restore basic fairness to our tax system by ending the Bushera tax cuts for the richest two percenthouseholds with income above $250,000 a yearwhile extending the tax cuts for 98 percent of Americans. President obama would extend the Bush-era income tax cuts on household income up to $250,000 ($200,000 for an individual), and would extend the 2009 improvements in the EITC and CTC. This approach would give the 98 percent of Americans with incomes below those levels their full tax cuts in 2013. The richest two percent also would receive a tax cut on their first $250,000 in income; but the tax cuts would end on income above those high levels. Republicans in Congress want to extend the Bushera tax cuts on all income, including income above $250,000but end the improvements in the EITC and CTC that benefit lower-income working families. In effect, they would pay for big tax cuts for the wealthy by making low-income working families pay more in taxes, cutting priorities that strengthen the economy and the middle class, and borrowing even more. Ending the Bush-era tax cuts for the richest two percent is simply asking them to pay their fair share. If unaffordable tax breaks for the wealthy are continued, we wont be able to address national priorities, such as repairing our crumbling infrastructure, improving education, helping vulnerable children and seniors, and reducing the deficit. Extending the tax cuts for the richest two percent would cost the federal government about $1 trillion over the next 10 years, including added interest on the debt.1 next year alone, the republican plan to extend the Bush-era tax cuts for the richest two percent would cost $68 billion more than the obama plan, not including additional interest costs on the debt.2 Thats about the amount the federal government will spend this year to repair highways, improve K-12 education, expand opportunities for low-income children with head Start and school breakfast, ensure clean drinking water, and deliver meals at home to frail seniors. This report compares the effects on Maine residents of President obamas proposal to extend the Bushera tax cuts for all but the richest two percent with the Republican proposal to extend those tax cuts for all Americans, including for the richest two percent, and end the 2009 Recovery Act tax cuts for lowerincome working families. This report also shows what the $68 billion that would be saved by ending the Bush tax cuts for the richest two percent means for maine residents.
Time To Pay Their Fair Share: maiNe 1

FEW MAiNE RESiDENTS WOulD BE AFFECTED By ENDiNG ThE BuSh-ERA TAx CuTS FOR ThE RiChEST TWO PERCENT
President obamas proposal to end the Bush-era tax cuts on income over $250,000 affects 2 out of 100 Maine taxpayers. That means 98 out of 100 taxpayers get the same tax cut as before, by and large. [Figure 1] But, the difference in wealth between these two income groups is huge2.1 percent of the states taxpayers have an average income of nearly $583,000, whereas the other 98 percent make about $54,000 on average. Under both the obama and Republican plans, all Maine taxpayers get a tax cut up to the first $250,000 they earn. Above that amount, the tax cuts would end under the obama plan, which is why Maines wealthiest citizens get a much larger average tax cut under the Republican plan. For those making more than $250,000, the average tax cut in 2013 under the Republican plan would be nearly $28,000 compared with about $15,000 under obamas plan. [Figure 2]
FIGURE 1

At the $500,000 income level and beyond the differences are even starkerthe tax cut under the Republican plan would be nearly three times larger, nearly $73,000 compared with about $25,000. [Figure 3] For those with incomes under $250,000 a year the tax cuts under both plans are generally similar. however, President obama would give Maine residents making less than $25,000 a year a tax cut roughly one-third larger than what they would receive under the Republican plan$230 from obama, on average, compared with $170 from Republicans. Thats because President obamas plan would extend improvements in the EITC and CTC for lowerincome working families while the Republican plan would end them. Middle-class Maine residents making between $50,000 and $100,000 a year would receive a tax cut of about an equal amount under the obama and Republican proposals$1,360 and $1,350 on average, respectively.
FIGURE 2

Share of Maine Taxpayers Earning under $250,000 and Over $250,000

Over $250,000: 2.1%
$582,530 Average Income

Average Tax Cut in Maine, 2013 Republican Plan vs. Obama Plan
$27,230 n Republican n Obama

$14,930

Under $250,000: 97.9%

$54,370 Average Income

$1,200 $1,230 Income Over $250,000 Income Under $250,000

Source: Institute on Taxation and Economic Policy (ITEP) tax microsimulation model, July 2012

Source: Institute on Taxation and Economic Policy (ITEP) tax microsimulation model, July 2012.

Time To Pay Their Fair Share: maiNe

The share of the tax cuts received by the wealthiest two percent of Mainers is hugely disproportionate under the Republican plan. For example, 32.8 percent of the total tax cuts would go to those making more than $250,000 in 2013, compared with 20.6 percent under the obama plan.

The difference for taxpayers with income above $500,000 is even more dramatic. Under the Republican plan, these taxpayerswhich represent just 0.5 percent of Maine taxpayerswould get nearly 22 percent of the tax benefits, compared with about 9 percent under the obama plan. [Figure 4]

FIGURE 3

Competing Approaches to the Bush Tax Cuts, impact in 2013 in Maine

republican plan State taxpayerS (Permanent Bush income tax cuts for all income, estate tax cut more, no EITC or child credit expansion from Recovery Act) Share of Tax Cut 2.6% 11.0% 23.7% 30.0% 11.0% 21.8% 100.0% 67.2% 32.8% $15,640 36,450 70,160 139,140 351,470 1,281,680 $65,450 $54,370 $582,530 $ 170 700 1,350 4,090 12,160 72,810 $1,740 $ 1,200 $27,230 ObamaS plan (Extend Bush income tax cuts for first $200k/250k, estate tax cut, extend EITC and child credit expansion from Recovery Act) Average Tax Cut $ 230 750 1,360 4,090 11,540 25,170 $1,520 $ 1,230 $14,930 Share of Tax Cut Average Difference* 4.0% 13.5% 27.3% 34.4% 12.0% 8.6% 100.0% 79.4% 20.6% $+60 +50 +10 620 47,640 $ 220 $+30 $ 12,300 republican vs. Obama plan

Income Group $1$25,000 $25,000$50,000 $50,000$100,000 $100,000$250,000 $250,000$500,000 Over $500,000 ALL Under $250,000 Over $250,000

% in Group Average Income Average Tax Cut 26.4% 27.3% 30.5% 12.8% 1.6% 0.5% 100.0% 97.9% 2.1%

*average Difference: A positive number indicates a taxpayer pays more under the Republican plan than under the Obama plan. A negative number indicates a taxpayer pays less under the Republican plan than under the Obama plan. Source: Institute on Taxation and Economic Policy (ITEP) tax microsimulation model, July 2012

FIGURE 4

Share of Tax Cuts Going to Each Maine income Group, 2013 Republican Plan vs. Obama Plan
34.4% n Republican n Obama 30% 27.3% 23.7% 21.8%

11% 4%

13.5%

38%

11%

12% 8.6%

2.6%

$1$25,000

$25,00$50,000

$50,000 $100,000

$100,000 $250,000

$250,000 $500,000

$500,000+

Source: Institute on Taxation and Economic Policy (ITEP) tax microsimulation model, July 2012 Time To Pay Their Fair Share: maiNe 3

MAiNE CANT AFFORD TO KEEP GiviNG TAx CuTS TO ThE RiChEST TWO PERCENT
Republicans want to spend $1 trillion over the next 10 years to give more tax cuts to the richest two percent. Next year alone, their tax plan would cost $68 billion more than President obamas plan. But residents cant afford to keep giving away huge sums of money to the people who need it least. how much is $68 billion? A lot! The $68 billion that the federal government would spend in 2013 by extending the Bush-era tax cuts for the richest two percent equals the amount the federal government will spend in 2012 for all of the following programs combined: highway planning and construction$39.9 billion Title 1, K-12 education$14.5 billion head Start$8.0 billion School breakfast$3.3 billion Clean Water funds$2.4 billion Meals for homebound seniors$0.2 billion

These programs, financed by federal tax dollars, help maintain Maines highways, improve Maines schools, expand opportunities for Maines most vulnerable children, provide a nutritious breakfast for children from low-income families, ensure clean drinking water for Maine, and provide meals for frail seniors from Maine.

ThiS iS WhAT MAiNES ShARE OF ThE FuNDiNG FOR ThESE PROGRAMS MEANS FOR MAiNERS:
$169.2 Million for highway Planning and Construction
Maine will receive $169.2 million in federal funds in FY 2012 to help it plan, build, and repair highways and bridges and support other transportation improvements. These investments in infrastructure help all residents travel more safely and efficiently and promote economic growth and job creation.

$51.9 Million for K-12 Education

Maine will receive $51.9 million in FY 2012 in Title I funds for K-12 education, which are granted to local school districts serving disadvantaged children. In the 2009-2010 school year, 544 Maine schools serving 150,925 Maine children were eligible for Title I funding to support K-12 education.

$31.6 Million for head Start

Maine will receive $31.6 million in federal funds in FY 2012 for head Start, which helps preschool-age children in low-income families build the skills they need to succeed in school. head Start and Early head Start preschool programs served 3,748 children in low-income Maine families in 2009.

Time To Pay Their Fair Share: maiNe

$10.4 Million for School Breakfast

Maine will receive $10.4 million in federal funds in FY 2012 for the school breakfast program, which provides free or reduced price breakfasts to children from low- and moderate-income families. A nutritious breakfast improves childrens health and helps them start the day ready to learn. In 2011, the program served an average of 41,319 Maine children each day.

$20.1 Million to Make Drinking Water Safer

Maine will receive $20.1 million in federal funds in FY 2012 to construct water treatment facilities and ensure clean drinking water.

$1.1 Million to Provide Meals to homebound Seniors

Maine will receive $1.1 million in federal funds in FY 2012 to provide home-delivered meals to frail seniors. About 5,419 Maine residents received meals through this program in 2010.

Its not just common senseand common decencythat tells us that these investments are more valuable than giving more tax cuts to the richest two percent. Theyre also more effective at boosting the economy. Noted economist Mark Zandi estimates that every $1 invested in infrastructure generates $1.44 in economic growth and every $1 invested in aid to states generates $1.34 in economic growth. In contrast, spending $1 to extend the Bush income tax cuts doesnt even break even; it generates only 35 cents in economic growth.3

CONCluSiON
Giving costly tax breaks for those who need them the leastthe richest two percentis exactly the kind of special-interest giveaways Washington needs to stop. We admire financial success in America. But when the rich get tax breaks they dont need and the country cant afford, the middle class has to make up the differenceand thats not right. To strengthen our economy, we need to improve our crumbling infrastructure. We need to support our schools and make sure all children are healthy and ready to learn. We need safe drinking water. We need to provide for the elderly and other vulnerable people. The wealthiest Americans need to pay their fair share. Its time to end the Bush tax cuts for the richest two percent.

Time To Pay Their Fair Share: maiNe

METhODOlOGy
Estimates of the tax breaks provided under President obamas plan and the Republican plan include estimates of proposed income tax breaks and proposed estate tax breaks in 2013 compared to current law (compared to what will happen if Congress simply does nothing). The income tax cuts under both plans are estimated using the Institute on Taxation and Economic Policy (ITEP) microsimulation tax model. http://itep.org/ about/ITEP_tax_model_simple.php The estate tax cuts under both plans are estimated based on revenue estimates from the Congressional Budget office and calculations by ITEP. President obama would extend part of the Bush-era cut in the estate tax, which almost exclusively affects taxpayers with incomes above $250,000 (and much higher). The Republican plan would extend a much larger cut in the estate tax for these high-income families. For a more detailed description of the provisions included in the Presidents plan and the Republicans plan, see Citizens for Tax Justice, U.S. Taxpayers and the Bush Tax Cuts: obamas Approach vs. Congressional GoPs Approach, June 20, 2012. http://www.ctj.org/bushtaxcuts2012/us.pdf. The tax provisions characterized as President obamas plan are included in President obamas Budget for Fiscal Year 2013. The tax provisions characterized as the Republican plan are included in the congressional budget resolution for Fiscal Year 2013, introduced by Rep. Paul Ryan (R-WI), which passed the house by a vote of 228 to 181; no house Democrats voted for the Ryan budget and 10 Republicans voted no. The Ryan budget, h.Con. Res. 112, came up in the Senate on a motion to proceed; 41 Republicans and no Democrats voted yes, and 53 Democrats and 5 Republicans voted no. The Ryan budget also proposes large additional cuts in tax rates for high-income individuals and corporations that are not included in this analysis. Estimates of total federal spending and each states share of federal spending on various programs in FY 2012 come from office of Management and Budget, Budget of the United States, Fiscal Year 2013, Analytical Perspectives, Special Topics, Aid to State and Local Governments, http://www.whitehouse. gov/sites/default/files/omb/budget/fy2013/assets/ topics.pdf, except for the estimate on spending for home delivered meals: http://www.aoa.gov/AoA_ programs/oAA/Aging_Network/State_Allocations/ docs/T3_2012.pdf Estimates of numbers of people served come from various agencies: Title I K-12: http://nces.ed.gov/pubs2011/ pesschools09/tables/table_02.asp (number of schools in each state receiving assistance), http:// nces.ed.gov/pubs2011/pesschools09/tables/ table_03.asp (number of students in each state receiving assistance) head Start: http://eclkc.ohs.acf.hhs.gov/hslc/ mr/factsheets/fheadStartProgr.htm Meals for seniors: http://www.aoa.gov/AoARoot/ Program_Results/SPR/2010/Index.aspx (National & State Figures, Table 1)

endnoTes
1 Center on Budget and Policy Priorities,Joint Tax Committee: Raising Threshold for Bush Tax Cuts from $250,000 to $1 Million Would Lose $366 BillionNearly half the Revenue (May 30, 2012) http://www.cbpp.org/cms/index.cfm?fa=view&id=3785 2 Citizens for Tax Justice, Proposals for Extending Bush Tax Cuts for Another Year Would Cost Upwards of $240 Billion (July 9, 2012) http://ctj.org/ ctjreports/2012/07/fact_sheet_proposals_for_extending_bush_tax_cuts_for_another_year_would_cost_upwards_of_240_billion.php 3 Mark Zandi, Testimony Before Congress Joint Economic Committee, Bolstering the Economy: helping American Families by Reauthorizing the Payroll Tax Cut and UI Benefits (February 7, 2012) http://www.jec.senate.gov/public//index.cfm?a=Files.Serve&File_id=df8f2728-94fa-4339-992aa9b8d2505fc2

Time To Pay Their Fair Share: maiNe