Tax cut proposals on tap in Augusta

Posted April 01, 2011, at 6:14 p.m.

AUGUSTA, Maine — Even as the dreaded April 15 tax deadline draws closer, State House lawmakers are preparing for a lengthy and lively debate over a slew of proposals that could reduce the amount some Mainers owe to the tax man at this time next year.

On Monday, lawmakers will delve deeper into the issue when members of two legislative panels — the budget-writing Appropriations and Financial Affairs Committee and the Taxation Committee — begin discussing the tax relief proposals contained in Gov. Paul LePage’s two-year budget.

Lawmakers on both sides of the political aisle also have introduced dozens of their own tax-cut proposals, which, if approved, would have to be incorporated into the next biennial spending plan due to Maine’s constitutional requirement of a balanced budget.

Sen. David Trahan, a Waldoboro Republican who co-chairs the Taxation Committee, said Thursday he hopes to have something on the table within a week to 10 days to spark discussion. And because any budget would need a two-thirds majority, Trahan acknowledged, Republican lawmakers can’t do it without Democrats.

“So we hope to put something together that they can support,” Trahan said.

LePage, a Republican who campaigned on smaller government and lower taxes, has proposed changes to the tax code that would save Mainers an estimated $203 million over the biennium.

Much of those savings would be achieved by conforming Maine’s tax code with the federal code in such areas as standard deductions and personal exemptions. For example, the federal government will allow a personal exemption of $3,750 in 2012, compared to $2,850 in Maine.

LePage’s plan would also, beginning in 2013, lower Maine’s top income tax rate from 8.5 percent to 7.95 percent. According to the administration, the various changes would result in an average tax decrease of $288.

Sen. Richard Rosen, a Bucksport Republican who co-chairs the Appropriations Committee, said bringing Maine’s tax code back into conformity with federal standards is important. A nonconforming code means more work — and paperwork — for taxpayers and businesses struggling to navigate the different systems as well as the Maine Revenue Services, he said.

“I think it is important for people to understand that the governor’s proposal is not throwing out random tax reductions,” Rosen said. “The proposal is designed around bringing Maine back into conformity with the federal code.”

More controversially, LePage has proposed doubling the current estate tax exemption, meaning heirs would pay only the so-called “death tax” on property or businesses once the value hits the $2 million mark rather than the current threshold of $1 million.

While LePage and the proposal’s supporters say such a move helps people pass down businesses and farms to subsequent generations, critics contend that raising the limit to $2 million primarily benefits Maine’s wealthiest families.

Of course, Maine’s balanced budget requirement means any tax cuts have to be paid for in the current budget cycle. And that is where the most sparks could fly between Republicans and Democrats.

To finance his tax cuts, LePage has proposed increasing the amount that state employees contribute to their retirement plans and raising the minimum retirement age for new hires from 62 to 65. Additionally, the administration’s plan would freeze the cost-of-living adjustment paid to state retirees for three years and then cap future COLAs.

Administration officials say the proposals have two benefits: They free up money for tax relief, while helping close an estimated $4.3 billion pension shortfall. But critics say the governor’s tax plan would benefit the rich and hurt lower-income Mainers.

According to an analysis by the Maine Center for Economic Policy, a liberal think tank, the wealthiest top 10 percent of Maine’s population would receive roughly half of the tax relief in the governor’s proposal. And only 20 percent of the relief would be absorbed by Mainers earning less than $63,648.

Additionally, the center points out that LePage’s budget cuts by 20 percent the Maine Residents Property Tax and Rent Refund Program, also known as the “Circuit Breaker” program. That program provides property tax relief to more than 150,000 families.

Rep. Peggy Rotundo, a Lewiston Democrat who is ranking member on the Appropriations Committee, said she and other members are determined to craft a budget with unanimous support on the committee. So no one is drawing a line in the sand on any proposals.

That said, there is a lot of concern in the Democratic caucus about the governor’s proposals affecting state employees, retirees and cuts to some social service programs, Rotundo said. So even the governor’s plans to conform Maine’s tax code with the federal system “comes with a huge price tag,” she said.

“Clearly, the proposals made by the governor in the area of taxation are very significant,” she said. “But we are just going to have to work through the process and see where everything comes out in the end.”

Assistant House Majority Leader Rep. Andre Cushing, R-Hampden, said the first challenge will be to close yet another $62 million hole that has developed in the current budget year, which ends June 30.

But tax relief is a definite priority, Cushing said, so the Republican leadership has had “frank discussions” with Democrats about finding ways to achieve the two-thirds vote necessary to pass a budget that contains tax cuts.

“From our position in leadership, we want to make sure people have their concerns heard,” Cushing said.

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