AUGUSTA, Maine — Legislation that would make sweeping changes to Maine’s tax system was left on the table again Thursday after the Legislature’s Taxation Committee again touted the bill’s merits but balked at moving it forward.
The bill — crafted by a group of bipartisan state lawmakers known as the Gang of 11 and led by independent Sen. Richard Woodbury of Yarmouth — would increase and broaden the reach of the sales tax while lowering state income taxes to a flat rate of 4 percent.
Under the proposal, nearly all sales in Maine, including groceries and many services currently exempt, would be taxed at 6 percent.
The premise behind the sales-tax expansion is that nonresidents and visitors to Maine would pay more while state income and property taxes would go down.
The bill also would provide substantial property tax relief for homeowners who claim Maine residency. It would do so by expanding the Homestead Exemption program by exempting the first $50,000 of a home’s value from property taxes. The current program allows only the first $10,000 of value to be exempt.
Some lawmakers see the bill as a way to restore $200 million a year in revenue sharing to towns and cities that would be eliminated in a $6.8 billion state budget proposal offered by Republican Gov. Paul LePage.
Others have said the reform is more substantial than a one-time budget fix and is long overdue, but they have been unable to convince their colleagues to even move the bill to a vote in the committee, let alone a vote before the entire Legislature.
State Rep. Nathan Libby, D-Lewiston, a committee member and a member of the Gang of 11, said tax reform in Maine is long overdue.
“I come back to the fact that our tax code was established in the 1950s in a state that is very different than the state we have today,” Libby said.
Maine is too dependent on property taxes to fund local government and schools, Libby said. He said LePage’s plan to eliminate state revenue sharing with local government would mean even higher property taxes as cities and towns struggle to stay afloat.
LePage’s administration has said it’s a local choice whether property taxes are increased.
Libby said no Legislature in the past three decades has had the courage to reform the state’s tax system.
“I think this is a real attempt to tackle a really tough issue that’s taken many, many attempts and each one of them has failed,” Libby said. “If it was easy to reform and simplify and modernize and streamline our tax code, it would have been done before I was born and it hasn’t been.”
Libby said the gang’s plan “has legs and offers a real alternative to the governor’s budget.”
Lawmakers on the Legislature’s Appropriations and Financial Affairs Committee are in the process of working through LePage’s proposal while building their own alternative as the state’s fiscal year comes to a close on June 30.
The Maine Constitution requires a balanced budget be passed by the end of the fiscal year or most of the functions of state government will shut down.
Libby said he favored an approach to the tax reform bill offered by the committee’s House chairman, Adam Goode, D-Bangor. Goode suggested the committee send a letter to the Appropriations Committee that includes the tax bill’s language and committee members’ views on the measure.
Getting the bill to the budget-writing committee could allow them to use all or parts of it as they work toward an alternative to LePage’s budget.
Meanwhile, Senate President Justin Alfond, D-Portland, told reporters Thursday during a news conference he didn’t expect the budget proposal that would emerge from the Appropriations Committee in the days ahead to look anything like LePage’s.
“It will be a better budget,” Alfond said. “It will be a budget that does not increase taxes on every single Mainer through property taxes. It won’t be the governor’s budget. That budget is gone. That budget will not happen. If [LePage] expects to see that budget, he is mistaken.”
So far, LePage has said he would only support tax reform that didn’t increase the amount of taxes collected from Maine residents. Conservative lawmakers on the Taxation Committee seemed to echo that sentiment Thursday.
“We need to cut spending, we really do, and that’s the bottom line,” said Rep. Paul Bennett, R-Kennebunk. “The tax plan can be reworked, but until we cut spending we are going to be in the patch mode in this Legislature for years and years to come.”
Rep. Roger Jackson, R-Oxford, said he didn’t oppose reworking the tax code to make it more fair but believed the state needs to put its fiscal house in order with reduced spending first.
Jackson said he liked parts of the plan, but he wanted the legislation to include language that protected taxpayers from regular increases in the sales tax as a way to feed government growth.
“If you don’t put something on that prevents it from being increased every year, I can’t buy that,” Jackson said.
He echoed the sentiment of Rep. Stephen Stanley, D-Medway, who agreed tax reform in Maine is long overdue, but the primary focus of tax reform should be job creation.
Stanley said lawmakers should be making an effort to create jobs.
“But the problem that I see is us as legislators sitting back here and doing nothing,” he said.
Stanley said if the Legislature were going to raise taxes, it shouldn’t be done just to back-fill holes created in the budget cut by the executive.
“If we are going to raise taxes, let’s do it with a purpose, to gain something out of this,” he said. “Let’s gain some jobs, so that people have money to spend on the sales tax and things like that.”
Stanley said he could support the tax-reform proposal but agreed with his colleagues on both sides of the aisle that the measure still needed work and time was running out.
Matthew Stone of the Bangor Daily News contributed to this report.