AUGUSTA, Maine — While most lawmakers will take the summer off, the legislature’s Taxation Committee plans to start work on rewriting the state’s tax laws to make the tax code both simpler and fairer.
“What I want to do is to re-codify the tax code, make it simpler, make it fairer,” said Rep. Gary Knight, R-Livermore Falls, the co-chairman of the panel. “I want to extract the politics out of this if I can; I want us to focus on the economics.”
He said the panel is inviting economists, academics, certified public accountants and tax attorneys to work with the panel in overhauling the state tax code. He said year after year the panel has heard testimony about the complexity of the tax laws and about fairness issues.
“We are still one of the highest taxed states in the country, “Knight said. “And the [tax] mix is poor in that we have too much reliance on the property tax.”
Sen. David Trahan, R-Waldoboro, the co-chairman of the committee, agreed. He said the No. 1 tax concern that his constituents raise is property taxes.
“I think that the property tax, in particular, needs a real tough look,” he said. “I know that the income tax structure, we are not finished with that. Sales tax, there are some problems in that area.”
Trahan said he wants to take a close look at all of the tax credits lawmakers have adopted over the years. He said they have turned the tax code into “Swiss cheese full of holes” and he would like to repeal them and use that revenue to further lower other taxes.
“Our tax code is being hacked to pieces by credits,” he said. “A lot of them aren’t being utilized but they are on the books. When the legislature can’t find money for a program, often they have provided a tax credit for it.”
He said the committee was successful in crafting the tax cut package because it was “an open process” with discussions and debates done in public. He said the panel plans the same for the reform it will work on this summer and fall.
“I admit I am somewhat skeptical, “said Rep. Seth Berry, D-Bowdoinham, the lead democrat on the panel. “But, I am always interested in an open discussion and dialogue about how we can make our tax code more modern, more stable and more fair.”
He said the current tax structure is unfair to both low- and middle-income Mainers. He said there are clear philosophical differences on the committee, but he said it is worth the effort to “dig deeply” into tax policy.
“We all agree, on the committee, that there needs to be simplicity in the tax code,” Berry said. “And that there are entirely too many loopholes and tax expenditures.”
He said true tax reform will mean significantly changing the tax code so that the state gets less from income taxes and property taxes and more from consumption taxes. He said one panel member has already proposed a major tax reform plan, Sen. Richard Woodbury, I-Yarmouth, who is an economist.
“I believe that our tax system needs to be fundamentally refocused,“ Woodbury said. “In particular, I think our income taxes need to be reduced by a lot, a lot more than the 8.5 percent to 7.95 percent that was in the budget.”
He said the right balancing of the tax mix would reduce the income tax top rate to 4 or 5 percent and significantly increase consumption, or sales, taxes to make up for that loss of revenue. He said that could be accomplished by either a tax rate increase or by applying the tax to more items and services.
If that sounds familiar, it is because Democrats passed a tax reform proposal in 2009 that lowered the income tax rate and paid for it with a significant expansion of items and services subject to sales tax. The voters did not like the plan and in November 2010 repealed it at referendum following a successful people’s veto effort led by the Republican Party.
“The challenge when you try to do revenue neutral tax reform is that there are always winners and losers, “Woodbury said. “I think we need fundamental reform, far more than what was done in the budget.”
Knight said his goal is to hear from all of the experts in the field and see if the panel can craft a reform package that can at least start to be implemented. He acknowledges all of the problems inherent in seeking to reform taxes.
“But I think we have a shot at doing it,” he said.