Democrats propose tax increases to counter cuts proposed by LePage

By Christopher Cousins, BDN Staff
Posted April 23, 2013, at 1:03 p.m.

AUGUSTA, Maine — Democrats followed up their criticisms of Gov. Paul LePage’s $6.3 billion biennial budget proposal with a slew of bills that propose tax increases or new taxes to raise revenue.

Democrats characterized their bills as tools to fairly equalize Maine’s entire tax burden, including property taxes, and pass a balanced state budget without forcing municipalities to gut services. Republicans assailed Democrats for asking for more taxes five years into a recession that has ground away at the state’s economy and called the proposals “dead on arrival.”

Many of the bills — which range from reversing Republican-led state income tax cuts on top earners to increasing taxes on a variety of goods and services — were introduced Tuesday in the Legislature’s Taxation Committee. After that, they would likely have to garner support of two-thirds of lawmakers in the House and Senate, where Democrats hold majorities, to override a LePage veto. For that reason, House Minority Leader Kenneth Fredette, R-Newport, said most any bill that proposes to raise or add taxes is likely “dead on arrival.”

Democrats said some of their proposals are more about creating an equitable tax code in which all Mainers pay an equal percentage. House Majority Leader Seth Berry, D-Bowdoinham, is leading that charge with LD 1113, An Act to Provide Tax Fairness for Maine’s Middle Class and Working Families. Berry’s bill is often referred to as the “Buffett Rule” after billionaire Warren Buffett, who has famously argued that wealthier Americans should not be able to manipulate tax laws to the point where they pay less in taxes than their employees.

“I believe it’s time to bring that same logic to Maine,” said Berry. “We have a divided State House but we need to make the tax code fairer.”

Adam Lee, chairman of Lee Auto Malls, which owns 20 auto dealerships in Maine, provided a Maine version of Buffett’s reasoning. Lee said wealthy people should be expected to pay the same tax rates as anyone else, not less.

“My business depends on a strong middle class; Maine’s future depends on a healthy middle class,” he said. “A strong middle class is not helped by lower tax rates for the rich.”

Berry’s bill, which he introduced Tuesday afternoon during a public hearing before the Taxation Committee, would provide tax credits for low- and middle-income earners while assessing higher taxes on Mainers who earn more than $350,000 per year. Berry estimates his bill would cost those high earners an average of about a penny on every dollar in income taxes they already pay.

Other bills seek to equalize tax rates paid by high and low earners by resetting the income tax rate for high earners to 8.5 percent. Mainers who earn more than $250,000 per year saw their tax rate drop to 7.95 percent this year as a result of actions by the GOP-led 125th Legislature. A bill sponsored by Rep. Terry Hayes, D-Buckfield, and co-sponsored by Sen. Tom Saviello, R-Wilton, would apply the 8.5 percent rate to the portion of a household’s earned income that exceeds $250,000.

Rep. Bruce MacDonald, D-Boothbay, who is co-chairman of the Legislature’s Education Committee, proposes using roughly $20 million that would be generated by his bill, LD 692, An Act to Provide Funding for Education by Restoring the 8.5 Percent Income Tax Rate for High-income Taxpayers, specifically to fund education. He said his ultimate goal is for state government to pay for 55 percent of the cost of K-12 public education, though he acknowledged his bill would cover only a fraction of that.

“I know it will get vetoed by the governor, but right now I’m most interested to see how it will go in the committee,” MacDonald said Tuesday morning. “If we don’t do this and we keep underfunding education, you’re putting more and more of a burden on property taxpayers.”

Hayes’ proposal to tax political action committees, LD 815, prompted questions about constitutionality Tuesday. Pointing out that she has paid sales tax on political bumper stickers, the Buckfield representative explained that her intent in submitting the bill was to find a way to tap the millions of dollars contributed to political action committees to help monitor Maine’s campaign spending process.

However, Hayes acknowledged a potential problem when Rep. Matthew Moonen, D-Portland, pointed out that contributions to candidates would not be taxed while contributions to political action committees would be.

The Taxation Committee will hold hearings Friday on a number of bills related to sales and lodging tax increases. Among them are LD 1141, An Act to Increase the Sales Tax to Support Revenue Sharing; LD 1297, An Act to Provide Funding for Public Education by Increasing the Sales Tax; LD 1314, An Act to Allow a Local Option Tax on Meals and Lodging; and LD 1402, An Act to Amend the Taxes Imposed on Alcohol and Lodging.

Albert DiMillo Jr., a tax expert from South Portland, told committee members that raising sales taxes “is the worst thing you could do.”

During Tuesday’s hearing on LD 1110, a bill that proposes to repeal the income tax by Jan. 1, 2015, eliminate all sales tax exemptions and broaden the sales tax to include “the end use of all items, products and services, including Internet sales,” with reimbursement for groceries to people with incomes less than $20,000, DiMillo noted that property and income taxes are deductible on federal returns, while sales, meal and lodging taxes generally aren’t.

“Doing nothing is better than making it worse,” which is what would happen if Maine raised sales taxes, DiMillo said.

Noting that at least 70 Maine cities and towns have passed resolutions objecting to LePage’s proposal to suspend municipal revenue sharing, the liberal Maine People’s Alliance and the Fair Share Now! Coalition urged support for what it labels “Fair Share Budget Solutions.” In a prepared statement, the MPA quoted Brenda Kaler, a retired state employee from West Gardiner, who said, “The last two biennial budgets have asked lower- and middle-income people to absorb all the burden of balancing the state budget. It’s time that we ask high-income earners to do their part.”

Republicans countered that increasing sales and lodging taxes, as some of the Democrats’ bills propose, would harm average Mainers and fail to balance the budget.

“These are taxes that hit the middle class the hardest,” Fredette said Tuesday in a prepared statement. “Democrats would like to think that we can close the budget gap by taxing somebody else — the rich or the tourists. But the reality is that their tax hike package hits every Mainer, and hits them hard.”

Fredette said few if any of these bills will receive much Republican support. Coupled with an impasse over many aspects of LePage’s budget, the partisan divide over taxes could lead to serious difficulties on the budget-writing Appropriations Committee, which in recent years has prided itself on coming to bipartisan consensus on a number of budget bills.

Exacerbating the problem, said Fredette, are Democrat-led budget recommendations coming out of policy committees, such as the Education Committee proposing more funding for public schools, the Health and Human Services Committee bucking some LePage health care funding and eligibility cuts, and the Taxation Committee voting to restore proposed cuts to municipal revenue sharing.

“The last time this happened, when we had a Republican governor and a Democratic Legislature, it resulted in a government shutdown,” said Fredette, referring to a 1991 government shutdown. “Having that happen again would be very unfortunate for the people and businesses in the state of Maine.”

But Berry said Democrats have the majority of public sentiment on their side, at least when it comes to equalizing income tax rates.

“I’m optimistic that our colleagues from the other side of the aisle will apply reason here,” said Berry.

Richard Cebra, chairman of the Maine Republican Party, attacked Democrats in a prepared statement circulated Tuesday afternoon.

“It was clear from day one that Democrats planned to raise taxes, but this is breathtaking,” said Cebra. “Multiple bills to raise taxes on everything from meals to lodging, to income and sales tax and anything else they can find. It appears that Maine Democrats are much more concerned with appeasing the far left fringe of their base with massive tax hikes on the middle class than in doing what is right for Maine’s taxpayers and economy.”

BDN political analyst Robert Long contributed to this report.

http://bangordailynews.com/2013/04/23/politics/democrats-begin-introducing-tax-bills-to-counter-cuts-proposed-by-lepage/ printed on December 17, 2014