BANGOR, Maine — Democratic lawmakers John Piotti, Joseph Perry and others have worked for more than two years to redevelop a tax reform plan for Maine, but the hard part is likely just beginning. Now, they have to sell it.
“If there is ever a time, now is the time,” Piotti, the House Majority leader from Unity, said in an interview this week at the Bangor Daily News. “We need to be aggressive.”
Piotti and Perry, a Bangor senator and member of the Legislature’s Joint Standing Committee on Taxation, rolled out their tax plan last week, which essentially aims to reduce the state tax burden by $75 million a year.
In many ways the new plan is an update of a similar idea from two years ago. That bill was debated extensively and even passed through the House, only to fall short of Senate approval.
“I’m sure there are people saying ‘Didn’t you try this already and fail?’” Piotti said. “Well, this bill is smarter and more strategic.”
On its face, the Tax Reform and Relief Package would reduce Maine’s top income tax rate from 8.5 percent to 6.5 percent. The income tax would be a flat tax, but most Mainers would qualify for credits that would lower that rate substantially, Piotti said. The hope is that this will stimulate economic development and put more money in the pockets of Maine families.
Democrats are not pretending this is a tax cut. Instead, they propose making up the difference in several ways.
The first would be raising taxes on meals and lodging from 7 percent to 8.5 percent.
Second, they want to remove the 5 percent sales tax exemption from several items, including recreation and amusement, repair and maintenance services and some personal property services such as dry cleaning. They have removed some items that caused an uproar in 2007, such as taxing snacks and alcohol.
Also proposed are an increased tax on car rentals from 10 to 15 percent and a real estate transfer tax increase of 0.56 percent for every $1,000 above the price of a $500,000 home.
The theory is that these changes will not necessarily reduce taxes, but shift some of the overall burden to out-of-staters, as much as $75 million annually by their estimates.
“Many states already are changing their tax codes to favor residents,” said Perry. “Why shouldn’t we?”
Several other Democrats and even a few Republicans have signed on as co-sponsors of Piotti’s bill, but he knows not everyone will support this type of tax reform.
House Minority Leader Josh Tardy of Newport said he applauds the Democrats for attempting to reduce income taxes, but he doesn’t think this plan will work.
“This is just a lift-and-shift strategy,” Tardy said. “Yes, it would lower income taxes, but for every service or item that you’re adding a tax to, there are businesses that will be impacted.”
Many of those businesses have powerful and vocal lobbying agencies.
Greg Dugal, executive director of the Maine Innkeepers Association, said he has seen many versions of tax reform during his six-year tenure as head of the statewide group.
“We have always been opposed to increases in taxation in general and certainly increases in taxes on ourselves,” he said. “Under this idea, it’s all about exporting the tax, but in reality 60 percent of meals and lodging taxes comes from Mainers.”
Dugal also worried that raising taxes on meals and lodging might discourage business. He referred to a recent national study that estimated for every percentage point increase in taxes, there is a 1.5 percent decrease in lodging occupancy.
Dick Grotton, head of the Maine Restaurant Association, agreed with Dugal and said the meals and lodging industry in Maine lost $40 million in revenue over the last four months of 2008. That loss was due mainly to the poor economy, but he said it could be even worse with added taxes.
“This is something we should look at when times are better,” Grotton said.
Piotti doesn’t think businesses will suffer.
“Even if we increase from 7 percent to 8.5 percent, we’d still be lower than every New England state except New Hampshire,” he said, adding that some of the revenue would be invested in tourism promotion.
Tardy said he’s willing to participate in the tax reform debate, but he said it has to include some measures to control spending.
“If we could focus on the real cost drivers in Augusta, we wouldn’t need to mess with taxes at all,” he said. “We need a more sustainable form of government.”
Tardy also said that an alternative GOP tax plan is likely to be introduced soon.
Meanwhile, Piotti’s bill has been printed and distributed to lawmakers. It is expected to be heard by the taxation committee later this month or early next month. Its sponsor knows the timing is crucial, and he knows some will say now is not the time to tinker with tax laws.
“We’ll need to sell it better this time around,” he said. “We truly believe this will help Maine residents.”
Added Perry: “We hope we have enough time to explain this to the public. I’m not sure it had a fair shot [in 2007].”