AUGUSTA, Maine — A measure requiring that any surplus revenue in the state’s general fund be used to gradually reduce income tax rates passed through a legislative committee Tuesday and now awaits votes in the House and Senate.
As passed Tuesday, the proposal would use unexpected general fund revenue first to increase the income tax brackets and then to reduce the highest income tax rate gradually, eventually reaching 4 percent.
During the last session, the Republican-controlled Legislature and Gov. Paul LePage enacted some aspects of tax reform through the $6.1 billion biennial budget by reducing the top income tax rate from 8.5 percent to 7.95 percent.
LD 849 takes that one step further, but only if the state’s general fund reports a surplus. State law already includes a priority list for distributing unexpected general fund revenues to accounts, including tax relief.
“People say, ‘Why do this? We never have money.’ But in the 1990s, there was a ton of money and we missed an opportunity to provide true tax relief,” Senate Majority Leader Jon Courtney said. “This is a long-term commitment going forward. It sends a strong message across the country that we’re not going to stop until the top rate is 4 percent.”
Courtney said Maine’s income tax rate has long been one of the biggest deterrents for potential businesses.
Reducing income taxes without accounting for the lost revenue elsewhere could create big holes in the state budget, but Courtney said it forces lawmakers to look hard at spending, too.
Democrats on the Taxation Committee opposed the bill when it came to a vote Tuesday, setting up what could be a lively debate on the House and Senate floors
“Passing something that does nothing today leaves me feeling uncomfortable supporting it,” said Rep. Elsie Flemings, D-Bar Harbor.
LD 849 had been carried over from the 125th Legislature’s first regular session and was used as a framework for a broader discussion by the Taxation Committee during several work sessions last summer.
Taxation Committee members ultimately declined to put forth any wholesale tax reform plans, but some felt that the carryover bill, slightly amended, was still a good step.
In 2008, with strong majorities in the House and Senate, Democrats advanced a tax reform package that reduced Maine’s top income tax from 8.5 percent to 6.5 percent for all residents earning less than $250,000 a year. To offset lost revenue, the bill sought to broaden the state’s sales tax to more categories of goods and services and raised the meals and lodging tax from 7 percent to 8.5 percent.
The plan was approved by the House and Senate and signed into law in June 2009.
Republicans, arguing that the proposed changes were too complicated and did little to relieve the tax burden on Mainers, launched a people’s veto.
With more than 60 percent of the vote, Mainers rejected the Democrats’ plan the next year.