‘Gang of 11’ plan earns more praise for bipartisanship than tax changes

The State House in Augusta.
The State House in Augusta.
Posted May 10, 2013, at 5:44 p.m.
Last modified May 10, 2013, at 7 p.m.

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AUGUSTA, Maine — The bipartisan group of 11 lawmakers who crafted a bill to overhaul Maine’s tax code earned praise for their collaboration Friday, but representatives from a number of industries came out against their tax reform plan while municipal officials came out in support.

Dozens testified Friday at a public hearing on the tax reform bill, LD 1496. The bill would raise Maine’s 5 percent sales tax to 6 percent and extend it to nearly all consumer goods and services, including groceries and heating oil.

The $700 million more in revenue annually from the expanded tax would be used to lower Maine’s individual income tax rate to a flat 4 percent, eliminate the estate tax, and provide property tax relief for full-time residents through a homestead exemption that shields $50,000 of residents’ property from taxes.

The plan also would raise excise taxes on beer and wine, raise the state’s lodging tax to 10 percent from 7 percent and tax auto rentals at 15 percent, up from the current 10 percent rate.

Rep. Gary Knight, R-Livermore Falls, the bill’s sponsor, said one of the plan’s intentions is to bring balance to Maine’s tax code so the burden is split more or less evenly among the sales, income and property taxes.

“Each leg should be approximately the same length so as to give proper support to that stool,” Knight said. “The relative proportion should be one-third, one-third, one-third, roughly. That is clearly not the case here in Maine.”

According to the Federation of Tax Administrators, 41 percent of Maine’s taxes in 2010 came from the property tax, compared with 29 percent from sales and 25 percent from income.

Sen. Richard Woodbury, an independent from Yarmouth who was the plan’s chief architect, said the reform should deliver income tax relief that makes Maine more competitive in attracting businesses while delivering property tax relief to full-time residents. The plan can also help Maine export part of its tax burden to part-time residents and tourists, he said.

“We wanted this to be a very strong, pro-growth plan,” he said. “We thought it needed to be anchored with a major reduction in the income tax rate, so 4 percent became our target.”

But representatives from the real estate, tourism, beer and wine manufacturing, and legal services industries said the new taxes on services and increased taxes on other goods would inhibit economic growth.

“This tax increase would have a negative impact on one of the few growing industries we have here in Maine,” said Dan Riley, a lobbyist for the Maine Brewers’ Guild.

Linda Gifford of the Maine Association of Realtors said increases in the real estate transfer tax along with new taxes on appraisal, building inspection and other real estate-related services could interfere with the recovery of Maine’s housing market.

“For every recession this country has been in, it is real estate that brought the recession to an end,” she said. “We’re experiencing a fragile recovery in Maine. We don’t want anything that will upset that.”

The Maine State Chamber of Commerce also opposed the bill.

“Our opposition is not because we oppose the concept of tax reform,” said Chamber President Dana Connors, “but rather, because of the lack of specificity in the proposal before us today, as well as the lack of time to fully digest what the implications could be for Maine’s economy in order to avoid a ‘law of unintended consequences.’”

The Maine State Chamber of Commerce has opposed past unsuccessful efforts to reform Maine’s tax code by expanding the sales tax in order to fund income and property tax relief. The Chamber spearheaded opposition that helped to imperil a 2007 plan, and the group opposed a plan in 2009 that passed the Legislature. The Chamber, however, switched sides and opposed the people’s veto effort that successfully repealed the law.

The 2013 tax reform plan offers low-income residents “fairness” credits through their income tax filings to offset their sales and property tax burdens.

But Albert DiMillo of South Portland, a retired corporate tax director for companies including Bath Iron Works and Raytheon, told lawmakers the tax reform plan overall would make Maine’s tax code more regressive, saddling lower-income residents with a greater portion of the tax burden.

“The plan gives millions in estate and income tax cuts to a small group of millionaires under the myth that these tax cuts will keep Mainers from leaving Maine,” he said. “The only credible studies done have shown that states that lower taxes to keep residents from migrating to lower-tax states resulted in significant decreases in tax revenue.”

Geoff Herman, director of state and federal relations for the Maine Municipal Association, said a homeowner with a $100,000 home could see a $475 property tax decrease if the reform plan is enacted. For businesses that wouldn’t benefit from the plan’s property tax relief provisions, Herman said, “We do believe the income tax benefits outweigh that for many types of businesses.”

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