AUGUSTA, Maine — A legislative committee Friday voted along party lines to raise Maine’s sales tax to 6 percent starting in October if the state’s revenue sharing payments to towns and cities continue to fall short of the level prescribed in state law. The Legislature’s Taxation Committee also moved closer to raising income taxes on those earning more than $100,000.
The committee voted 8-3 to support LD 1141, sponsored by Rep. Charles Theriault, D-Madawaska, with Republicans opposing the move. The bill would raise the state’s 5 percent sales tax to 6 percent whenever the state’s revenue sharing payments to municipalities fall short of the 5 percent of state income and sales tax revenue prescribed in state law.
Maine lawmakers have cut back on revenue sharing payments for the past four years in order to balance the state budget, and Gov. Paul LePage has proposed suspending revenue sharing in his proposal for a new two-year budget in order to save nearly $200 million.
The Taxation Committee last month voted 6-3 against eliminating revenue sharing, and committee members said they would prepare revenue-raising alternatives in order to balance the budget. Hiking the sales tax from 5 percent to 6 percent would generate about $163 million a year in additional revenue, according to Maine Revenue Services. The 6 percent rate would tie Maine with 12 states for the 16th highest sales tax in the nation, up from its rank of No. 31, according to the Tax Foundation.
“What I’ve heard from my constituents and people who have come to testify is [that] we need to find alternatives to the tax proposals in the governor’s budget,” said Rep. Ryan Tipping-Spitz, D-Orono, a Taxation Committee member. “No one wants to raise taxes, but in a situation where we have to, we should find the most fair way to do it.”
Taxation Committee members on Friday also inched closer to raising income taxes on those earning more than $100,000 annually and directing the increased revenue to public school funding. Minority Republicans on the committee said they also opposed income tax increases as Maine’s economy struggles to recover.
The committee was considering about a dozen measures that would raise additional revenue to fill in the state’s budget gap as well as for tourism marketing, education and revenue sharing.
Consensus emerged on consideration of one measure, LD 1256, that would return Maine’s top income tax rate to 8.5 percent for those earning $100,000 or more starting next year. The top tax rate dropped to 7.95 percent at the start of 2013 as a result of income tax cuts passed in 2011 by the Republican-led 125th Legislature.
Committee members agreed to add a provision from another income tax-raising bill, LD 692, that directs the additional revenues to public education. That added revenue could address a recent vote by the Legislature’s Education Committee to increase school funding by $30 million beyond the level recommended by LePage in his two-year budget proposal.
Increasing income taxes on those earning $100,000 or more could raise about $25 million annually, according to estimates from Maine Revenue Services. The Taxation Committee agreed to take a final vote on the measure once the details are determined.
Republicans said they would object to bills that raise income taxes.
“I’m a firm believer that the last thing you do in a recession like this is raise taxes,” said Sen. Doug Thomas, R-Ripley.
The committee’s discussion on a series of revenue-generating bills came two days after a bipartisan group of 11 lawmakers, including two who sit on the Taxation Committee, introduced a proposal for a comprehensive overhaul of Maine’s tax code that would raise the sales tax and apply it to more goods and services in order to fund a lower income tax and property tax relief.
The tax reform proposal, LD 1496, colored Friday’s discussion. Rep. Stephen Stanley, D-Medway, said committee members should be cautious about passing individual revenue-generating bills without considering the bigger picture.
“I think we ought to be putting our time into constructing some sort of tax policy for this state instead of putting our emphasis on some of these bills here that we know won’t go anywhere in the long run,” he said.
LePage and Republican legislators have consistently said they would oppose any tax increases, and Democrats do not have big enough majorities in the House and Senate to override a veto.
While the Taxation Committee abandoned bills Friday that would have revised the income tax rate structure to charge high earners more and eliminate the state income tax altogether, committee members said they still wanted to consider a “tax fairness” proposal sponsored by House Majority Leader Seth Berry, D-Bowdoinham, that would lead to the state’s wealthiest and poorest residents paying the same effective tax rate.
In addition, the Taxation Committee is considering proposals that would raise the state lodging tax, and on Monday, the committee will hear testimony on bills that would raise Maine’s cigarette tax to $3.50 a pack from $2 and extend that same tax to other tobacco products.