Maine tax overhaul would raise sales tax, cut almost all income-tax deductions

By Scott Thistle, Sun Journal
Posted May 22, 2013, at 7:01 a.m.

AUGUSTA, Maine — A bill that would make sweeping changes to the way Maine collects taxes on income, sales and property received a mixed reaction from members of the Legislature’s Taxation Committee Tuesday.

The bill, LD 1496, is the effort of a panel of 11 lawmakers who have been dubbed the “Gang of 11″ at the State House.

The group includes Democrats, Republicans and one independent. It aims to lower Maine’s average personal income tax rate from about 7 percent to just over 4 percent.

The bill would also increase the state’s sales tax from 5 percent to 6 percent, while expanding it to a broader range of purchases, including groceries and services not currently taxed. Additional taxable purchases would include amusement, entertainment and recreational services, such as movie tickets, skiing and golf fees.

Earlier versions of the measure also would have reduced the state’s corporate income tax rate from 8.9 percent to 7.5 percent, but the bill’s chief author, Sen. Richard Woodbury, an independent from Yarmouth, said Tuesday that the reduction had been eliminated from the bill.

The bill also eliminates almost all of the income tax deductions and credits in Maine’s current code.

After presenting details of the bill and answering questions from the committee Tuesday, Woodbury, an economist by training, said he was cautiously optimistic the Legislature would move forward with the package.

Among other things, the bill helps solve a current state budget shortfall of more than $800 million that lawmakers are trying to close as the end of the state’s fiscal year approaches on June 30.

But the bill also moves the state toward a more stable and balanced revenue stream with less dependence on the income tax, which is more susceptible to overall economic downturns, Woodbury said.

Woodbury said Tuesday the proposal is partly in response to a $6.3 billion state budget proposal offered by Gov. Paul LePage that eliminates state revenue sharing with local towns and cities.

Opponents to LePage’s plan have said that will force towns and cities to increase property taxes to make ends meet. Currently the state, via a formula, shares a portion of the taxes it collects with local cities and towns.

“I think that nobody is especially fond of the budget as it was proposed by the governor, and people are bringing forward a variety of alternatives on how to address it, and I think it’s important to have a comprehensive tax-reform option on how to address it,” Woodbury said.

LePage has called the plan a “bad idea.” However, on Monday, he also said there were parts of the bill he liked and would be more favorable toward it if it were revenue neutral or, in other words, if it did not increase the overall tax burden on Maine people.

During a news conference Monday, LePage reiterated his goal of entirely eliminating the state’s income tax, but he didn’t completely rule out the Gang of 11 plan.

Conservatives are largely in opposition to the plan because it doesn’t do more to reduce state spending but instead finds ways to collect more revenue to run state government.

Woodbury and the bills co-authors, including Rep. Gary Knight, R-Livermore Falls, said the sweeping sales tax increases in the bill are largely negated by property and income tax reductions.

Woodbury also told the committee Tuesday that the sales tax expansion is aimed to collect more revenue from those who visit the state or who have second homes here and don’t pay state income taxes.

“We have a lot of non-residents who spend a lot of time here and who consume stuff and they don’t pay income taxes,” Woodbury said.

He also said the bill wasn’t perfect, and he expected the committee would work to refine and calibrate it further — but some said the legislative clock was winding down.

Tuesday was technically the last working day for the committee, but they could get permission to take the bill up again and work on it next week, the committee’s Senate Chair Anne Haskell, D-Portland, said.

Haskell said there was enough support expressed by both Republicans and Democrats on the committee to warrant asking the Maine Revenue Service — the state’s tax collection agency — for an analysis in an attempt to move forward with a vote on the bill.

She said the committee could decide they want to move the bill forward, take some parts of it or scrap it entirely.

Another option would be for the committee to leave the bill until next year, but Haskell questioned the wisdom in doing that.

“This is an extraordinary time and an extraordinary opportunity for us to really look at a substantive tax reform, at simplifying and modernizing our tax code,” Haskell said.

She said some have suggested they don’t have enough time, or the measure is too complex to work out in the short time left in the current legislative session — but a majority of the committee was interested enough to move forward and learn more.

Haskell said if that’s the reason for stopping the bill, important tax reform will never be achieved in Maine.

While the general concept of the bill had been announced in April, the specific language of the reform, which would be completed in two phases, was detailed Tuesday.

That, according to Woodbury and others on the panel, will allow the MRS to provide a detailed analysis of how it might shake down for Maine taxpayers of various income levels.

It is expected that the MRS will report those details to lawmakers next week.

“Do we want numbers?” Haskell asked, “Yeah, we want numbers, because we don’t have an intelligent, comprehensive view of it unless we have the numbers attached to it.”

But some on the committee, including Sen. Doug Thomas, R-Ripley, and Sen. Roger Jackson, R-Oxford, said they’ve seen all they need to see.

“The more I see of it, the less I think of it, the more I dislike it,” Thomas said. “I think we’ve got some real serious problems in front of us to balance the budget. I think this just muddies the water. I recommend we just kill this thing and be done with it.”

But Rep. Nate Libby, D-Lewiston, a co-author of the reform, said he thinks the bill tackles a massive problem for Maine in reducing ever-growing property tax increases or those that would come under a loss in state revenue sharing.

“This is the only proposal so far that fixes the property tax issue,” Libby said.

The committee is expected to take the bill up again next week.

 

http://bangordailynews.com/2013/05/22/politics/state-house/maine-tax-overhaul-would-raise-sales-tax-cut-almost-all-income-tax-deductions/ printed on July 24, 2014