House OKs measure to restructure taxes

Posted June 04, 2009, at 9:21 p.m.

AUGUSTA, Maine — An effort to restructure Maine’s tax code by collecting more revenues from tourists and less from year-round residents took a step forward in the Legislature on Thursday.

The House voted 84-59 largely along party lines in support of a bill that would reduce Maine’s income tax brackets while applying sales tax to more goods and services. Bill supporters claim the end result of the measure, LD 1088, is that the vast majority of Mainers would see a decrease in their total tax burden.

“It puts money in the pockets of every working person in the state of Maine,” said Rep. Linda Valentino, D-Saco. “On Friday, when they collect their money, they will have a larger check.”

Opponents suggest that broadening the sales tax will hurt poorer Mainers disproportionately and that the tourism industry may suffer.

The Senate is expected to take up the bill today. But even if the bill emerges from the Legislature, it remains unclear whether Gov. John Baldacci will sign the measure into law.

“He has some serious concerns about it but I don’t know what action he will take,” Baldacci spokesman David Farmer said Thursday evening.

Both sides in the debate acknowledge that the bill seeks a tax “shift,” although the parties disagree on whether that change would ultimately help or hurt consumers and businesses.

Maine’s top income tax rate would drop from 8.5 percent to 6.5 percent, although backers say exemptions will bring the rate even lower for most Mainers. To cover the loss of income tax revenues, the bill’s drafters propose expanding the sales tax to additional items and services.

For instance, people who go whitewater rafting, skiing or to play a few rounds of golf would have to pay sales taxes, as would moviegoers. The state’s meals and lodging tax would also increase from 7 percent to 8.5 percent, all of which supporters say is aimed at capturing additional revenues from out-of-state visitors.

Sales taxes also would be applied to some candy and to auto repair labor costs — taxes are already charged on the parts.

In the end, supporters estimate the overhaul would reduce Mainers’ tax burden by $55 million. That is lower than the $75 million original estimate, which had to be adjusted due to the recession. But supporters said it would still help address perceptions that Mainers are among the nation’s most heavily taxed citizens.

“It’s about compromise and finding a solution that fixes the problem,” said Rep. Jim Martin, a Democrat and small business owner from Orono.

Opponents disagreed with supporters’ statements that tourists would shoulder more of the tax burden but questioned the rationale of such a shift, regardless, given the fact that tourism is Maine’s largest industry.

Like many critics, Rep. Andre Cushing, R-Hampden, pointed out that the tax increases on meals and lodging would affect Mainers who vacation within the state, attend conferences or sports events and eat at their local restaurants.

The opposition questioned whether now is the time to be forcing Maine residents — especially the poor and elderly — to pay more in sales taxes. Republicans also accused the Democratic leadership of attempting to rush a bill through.

“It’s way too confusing, way too complicated and way too costly for the people … and in the end, the benefit is way too small to work,” said Rep. Kathleen Chase, R-Wells.

LD 1088 is an outgrowth and modification of a tax restructuring proposal that passed the House two years ago but narrowly failed in the Senate.

Rep. John Piotti, the Unity Democrat who was the lead sponsor of the bill, expressed disappointment that Thursday’s vote was so partisan. No Republicans supported the bill, although several did not vote. Piotti, the House majority leader, attributed that to politics rather than ideology. A handful of Democrats voted no.

Overall, Piotti said he was pleased with the House’s endorsement, adding that he believes it speaks to the hard work of those who developed the proposal.

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