AUGUSTA, Maine — Republican leaders in the Maine Legislature on Friday made official their proposal for the state’s next two-year budget. It includes an income tax cut they say would save Mainers $380 million.
Parts of the proposal, first leaked Thursday, show a plan that diverges significantly from what Gov. Paul LePage had asked for in his two-year budget proposal, with one critic saying it will do little to stabilize the state’s revenue sources in the future.
LePage’s budget proposal seeks major tax policy reforms, including a reduction in the state’s top income tax rate from 7.95 percent to 5.75 percent, an increase from 5.5 percent to 6.5 percent on the state’s general sales tax and expansion of the sales tax base.
The Republican legislators plan, as rolled out Friday, seeks to reduce the top income tax in 2016 to 6.75 percent and lowers it to 6.5 percent in 2017.
The Republican plan also keeps the state sales tax at its current 5.5 percent rate and does not broaden it to include additional goods or services. Under current law, that sales tax rate is set to decline to 5 percent on July 1.
And while LePage’s budget proposes to eliminate $62 million in state revenue sharing with municipalities in 2017, the Republican plan keeps revenue sharing in place, increasing it by about $2 million to $64 million in 2017.
State House Republicans also eschew LePage’s proposal to allow a property tax on nonprofits that have properties valued at more than $500,000 and his plan to eliminate itemized deductions for personal income tax filers in Maine.
Republican lawmakers also differ with LePage on his proposal to double a property tax credit for those older than 65. Instead, they would keep in place a state tax credit allowed for most Maine homeowners.
“I think that most Republicans in the Legislature recognize that property taxes are important to people as well,” said Senate President Mike Thibodeau, R-Winterport. “We see revenue sharing as a way to keep those numbers in check. People back home are already struggling with exploding property taxes, so we didn’t want to turn our back on that responsibility, and [we] felt like we needed to continue to support our local communities.”
Thibodeau also said Friday that Republicans were unified and intent on not moving much from their proposal during negotiations with Democrats.
“We are always open to better ideas, but I’m not sure we are interested in the plan that they refer to as ‘the better plan,’” Thibodeau said. “We think this is the best plan.”
He and Rep. Ken Fredette, R-Newport, the House minority leader, said their inclusion of itemized deductions on the state income tax is an important part of the proposal.
Fredette and Thibodeau said those who itemize mortgage interest or donations to charity along with those who itemize medical expenses in some cases will end up with a lower “effective tax rate” than under LePage’s proposal, which eliminates itemized deductions.
They said the deductions help encourage investment in homes and help Maine charities as well.
“We want to encourage that type of behavior,” Thibodeau said. “That’s why we have had tax codes that allow for deductions, and I think that’s good public policy, and we need to continue it.”
Sen. Garrett Mason, R-Lisbon, the Senate majority leader, said that while Republicans were laying out their proposal on tax changes for Maine, another important part of the discussion on the state budget has yet to unfold.
“I think that we are going to have a conversation around spending very soon,” Mason said. “As in any household budget you need to know how much you make before you can decide how much you spend. So we are very much looking forward to the other half of the ledger over the next couple of weeks.”
Democratic leaders in the Legislature were quick to seize on Republicans’ apparent willingness to stray from LePage’s budget plan.
“Clearly the Republicans came out today and rejected the governor’s proposal and brought forward their own,” House Speaker Mark Eves, D-North Berwick, told reporters shortly after Republicans presented their plan.
Still Eves said Democrats had a lot of questions about the Republican plan, including learning how they intend to pay for the proposed income tax cuts.
Eves also noted that Democrats were more aligned with LePage on increasing and expanding the sales tax as a way to offset an income tax cut.
The Republican plan does align with LePage in that it seeks to eliminate the income tax on military pensions. Their plan also phases out the state’s estate tax over the two-year budget cycle.
The Republican proposal also increases the tax on meals and lodging from 8 percent to 9 percent. LePage’s plan would reduce the sales tax on meals to 6.5 percent while keeping the lodging tax at 8 percent, which also aligns with the Democratic proposal on the budget.
Eves said the Republican proposal does not bring in enough revenue to balance the lost income tax revenue.
“We want to know the full story,” Eves said. “We want to know how this is paid for, clearly the proposal does not adjust the tax system in a way to fully pay for a tax cut that we believe primarily benefits the wealthy and corporations.”
Adrienne Bennett, spokeswoman for LePage, said Friday the governor had been briefed on the latest incarnation of the Republican proposal but his focus remains set on eventually eliminating the state’s income tax completely.
“The governor has been meeting with the people of Maine, he’s been doing this for the last couple of months, and what he’s hearing from the people is that they are in support of the elimination of the income tax,” Bennett said.
Bennett said LePage also firmly believes voters statewide should be given the chance to weigh in on a proposed state constitutional amendment eliminating the income tax.
But earlier this week, a LePage bill that would have put the question before voters in 2015 was rejected on a 5-7 vote of the Legislature’s Taxation Committee.
Bennett said LePage was not necessarily disappointed with his Republican colleagues defecting from many of his positions on the budget but understood they were doing their job as they saw fit.
“It doesn’t matter if you agree or disagree with him,” Bennett said. “He just really wants people to get involved in the process. That’s how democracy works best.”
Bennett said LePage has been, “clear and consistent” on his tax reform message.
“He is going to be bold, he has set the bar high, and he is going do right by Mainers,” Bennett said. “He is going to do what he believes is best for all Maine people, and if legislators have a different opinion, we will see it when it comes down.”