AUGUSTA, Maine — A bill meant to bring sweeping reforms to Maine’s tax system was reduced to a letter Wednesday.
The Taxation Committee voted down the legislation before drafting a letter to the budget-writing Appropriations Committee with details of the proposed tax-policy changes, which include an increase in sales tax and a decrease in the income-tax rate.
Those who supported the legislation, the so-called Gang of 11, couldn’t be happier with the outcome: The measure may well become the lifeline that pulls a state budget on the rocks to fiscal safety.
Rep. Nathan Libby, D-Lewiston, a member of the gang of bipartisan lawmakers that crafted the plan, said it was ready for use, if needed.
“I think we’ve moved the bill into a position where we can hand it over to [the Appropriations Committee] and let them use it as an option to solve this current budget situation,” Libby said.
The Legislature’s budget-writing committee is in the final days of working out a plan that would close a state budget shortfall of about $800 million while rolling out a new $6.3 billion spending plan.
Libby later said the bill was “big and bold” and offers a way out for lawmakers torn over Gov. Paul LePage’s proposal that balances the budget, in part, by eliminating $400 million in state revenue-sharing to towns and cities.
LePage has shown some interest in the bill, although he has said he wouldn’t support it if it collects more revenue for the state than what currently comes in.
Libby said the bill does raise additional revenue, but it does so by increasing the sales tax from 5 percent to 6 percent while broadening it to almost all purchases. That change means visitors to Maine and nonresident property owners would pay more to support state government.
The measure also reduces the state income tax to a 4 percent flat rate for all payers and restores the revenue-sharing while improving property tax relief by expanding the state’s Homestead Exemption program. Current law allows the first $10,000 of assessed value on a property used as a primary residence in Maine to be exempt from property taxes. The bill would increase that exemption to the first $50,000 of valuation.
Rep. Gary Knight, R-Livermore Falls, is the chief author of the bill in the House and has said his goal was to create a more stable and fair tax system for Maine, which depends too heavily on property taxes.
The bill’s chief author in the Senate, Sen. Richard Woodbury, a Yarmouth independent, was all smiles Wednesday as well, noting, like Libby, the timing of the bill couldn’t be better as lawmakers in the waning days of the legislative session search for budget solutions.
The Taxation Committee’s letter continues to represent “a significant tax reform package as part of the budget,” Woodbury said. He said lawmakers on the Appropriations Committee could reach a deal and a compromise without the tax reform but, so far, there was no clear solution on the table.
Lawmakers must come to an agreement among parties and LePage by June 30 to avoid a state-government shutdown under the Maine Constitution. Democratic lawmakers have said they would like to have a final deal crafted by the end of this week.
“It hasn’t resolved yet in a way that’s satisfactory to all members of the Appropriations Committee or to both parties,” Woodbury said. “So while it doesn’t appear that this plan is the first place that people are looking for a compromise agreement, it’s not that it’s off the table, either.”
Woodbury said that as problems with other proposals reveal themselves, “more innovative solutions like this one will seem that much more appealing.”
It wasn’t immediately clear whether the Appropriations Committee had accepted the letter Wednesday, but Woodbury noted that two of the committee’s members — Rep. Dennis Keschl, R-Belgrade, and Sen. Emily Cain, D-Orono — are members of the Gang of 11 and were familiar with its components.
Not all lawmakers on the Taxation Committee are supporters of the tax reform and their sentiments were also documented in the letter. They said the plan came too late, is too difficult to understand, adds sales tax to basic staples such as food and heating oil and doesn’t do enough to reduce state spending or create jobs.
“This plan is a huge tax increase that many of us think would be bad public policy, especially considering we are just beginning to recover from the worst recession in our lifetime,” wrote Sen. Doug Thomas, R-Ripley and Reps. Roger Jackson, R-Oxford, and Paul Bennett, R-Kennebunk, in their portion of the letter.