AUGUSTA, Maine — It would mean a lot more money in Mainers’ paychecks, but critics of Gov. Paul LePage’s plan to eliminate the income tax say the cost is simply too high for the state to bear.
During a public hearing Tuesday on the governor’s bill, which would ask voters to ratify a constitutional amendment banning the income tax, proponents said the plan would amount to the “largest wage increase in the history of Maine.” They also stressed that they weren’t asking the Legislature to do anything but ask voters what they think the state’s tax system should look like.
“If Maine voters were to approve this, it really is a signal to our Legislature that this is a priority. And if it’s a priority, we’re going to have to figure out how to make it work,” said House Minority Leader Ken Fredette, R-Newport, who submitted the bill for LePage.
But “how to make it work” seemed to be the biggest stumbling block for Democrats on the Taxation Committee, and for their allies. Official state estimates indicate the tax cut would mean up to $1.7 billion less in state revenue annually, leaving lawmakers with a hole about half the size of the entire state budget.
Rep. Stephen Stanley, D-Medway, said that if the governor wanted to make that much money disappear from state coffers, he should have a plan for how to replace it — or a proposal for what spending ought to be cut.
“The concern that I have is for my constituents on how we are going to ratchet down, and what are the services and benefits that they are going to have to go without,” he said. “If we’re going to do a plan, I think the people of this state ought to know what the plan is going to be.”
Aaron Chadbourne, a senior policy adviser for LePage, said the details about how to kill the income tax weren’t necessary. There would be plenty of time for the governor and Legislature to hammer out the details, if voters agree with the plan, he said.
“When you put into the Constitution a protection for free speech, no one told you how to protect it,” he said.
Rep. Adam Goode, D-Bangor, the House chairman of the committee, said he saw no way to enact a tax cut of that size without painful slashing of education or health care budgets.
Previous tax cuts have created gaps that were filled by increasing the sales tax and cutting state aid for local services. But those cuts — including LePage’s 2011 income tax cut, the largest in state history — were small compared to the total elimination of the income tax, he said.
Joel Johnson, an economist with the left-leaning think tank Maine Center for Economic Policy, put it in context this way: “The money the state spends on [K-12] education is somewhere between $900 million and $1 billion,” he said. “Higher education is about $250 million. We could eliminate both and we would still have hundreds of millions of dollars to make up in order to accomplish this goal.”
Chadbourne called such analyses “scare tactics,” while Fredette pointed to handful of states that have no income tax as evidence that the system can work.
“These states have not had the sky fall in,” he said.
Seven states have no income tax at all: Alaska, Florida, Nevada, South Dakota, Texas, Wyoming and Washington. Another two states — New Hampshire and Tennessee — don’t levy a tax on wages, but do tax investment income.
The governor’s bill, LD 1367, would ask voters whether to eliminate the income tax starting in 2020. Before the measure hits the polls, it would need the support of two-thirds of the Legislature.
Even without that high threshold, it would face an uphill battle for the same reason as other contentious bills this session — the split Legislature.
Democrats, who are convinced the state could not afford to eliminate the income tax without sacrificing necessary state spending, control the House of Representatives, as well as a large enough minority in the Senate to prevent the measure from passing there.
The proposal comes as the Legislature chews a tax reform package in LePage’s proposed budget for fiscal years 2016 and 2017 that would reduce the top marginal income tax rate from 7.95 percent to 5.75 percent. It also features a cut in the corporate income tax rate and elimination of the estate tax. It balances the books, in part, by increasing the sales tax and broadening the base of goods and services to which it applies.
Democrats have criticized the tax reform plan in LePage’s two-year budget for allocating more than half of its income tax cut to the top 10 percent of wage earners, and have countered with their own proposal that they say spreads the tax cuts more equitably.
LD 1367 faces further action in the Taxation Committee before moving on to the House and Senate for votes.
Follow Mario Moretto on Twitter at @riocarmine.