AUGUSTA, Maine — Gov. John Baldacci signed into law on Friday a tax restructuring bill that aims to stabilize Maine’s revenue flow by collecting more taxes from visitors to the state and less from residents.
Several dozen Democrats packed into the governor’s office and then cheered loudly after Baldacci put his signature on a bill that lowers Maine’s top income tax rate from 8.5 percent to 6.5 percent for those earning less than $250,000 a year.
The bill seeks to offset those revenue losses by applying the sales tax to more goods and services while increasing the state’s meals and lodging tax from 7 percent to 8.5 percent. While bill supporters acknowledge Mainers will end up paying more in sales taxes and at restaurants or hotels, they predict that nearly 90 percent of residents will end up paying less in total taxes for the year because of the reduction to the income tax.
Supporters put the total savings for Maine taxpayers at around $55 million a year, or roughly $160 a person for the majority who will see a tax break. Opponents of the bill, which passed largely along party lines, questioned those savings.
Baldacci noted that Maine is lowering the income tax rate at a time when many other states are considering the opposite in order to weather the current recession.
“This has been an enormous undertaking and one which required many people to work very hard over a long period of time,” the Democratic governor said during the ceremony.
The bill signed into law on Friday is somewhat different from the measure passed by the Legislature last week after heated debate. Baldacci removed sales taxes on ski resorts, golf courses, bowling alleys and some other recreational activities. He also eliminated an increase in the real estate transfer tax for homes worth more than $500,000 but added a refundable earned income credit for low-income residents.
The governor’s bill also contains a smaller income tax reduction — 6.85 percent versus 6.5 percent — for Mainers earning more than $250,000 a year.
Rep. John Piotti, a Unity Democrat who was lead sponsor of the original bill, said afterward he was comfortable with the changes made in the governor’s bill.
“I know there are people who question whether this is good for Maine, but the people who have looked at this closely over many, many years, and the economists who have studied it, really believe this is going to provide a boost to our economy and is to going to be a benefit to the state of Maine,” said Piotti, the House majority leader.
Sen. Joseph Perry, the Bangor Democrat who led debate on the bill in the Senate, echoed comments that the legislation should only be a first step toward wider tax reform, especially in the area of income taxes.
“We’re not done,” said Perry, co-chairman of the Taxation Committee. “That [income tax] number is going to come down more over the next few years. I’d like to see it get down to 4.5 percent.”
During debate on the bill, the mostly Republican opposition questioned whether the measure will truly result in a tax break for most Maine residents. They warned that the most vulnerable, such as the poor and elderly, could end up paying more because of the broadened sales tax and worried that Maine’s hospitality and tourism industry — the state’s largest economic engine — could suffer due to the higher meals and lodging taxes.
The income tax reduction takes effect on Jan. 1.