AUGUSTA, Maine — Four months after Gov. Paul LePage laid out his blueprint for a monumental shift in Maine’s tax code, Republicans in the Legislature have made public their own proposal — one that deviates significantly from their party’s leader in the Blaine House.
The initial proposal, crafted by GOP members of the budget-writing Appropriations Committee, is the result of weeks of behind-the-scenes wrangling in a Republican caucus that was hesitant to support the broad sales tax increase and expansion that LePage proposed to pay for his coveted income tax cuts. Many of the Republicans had campaigned against such a scheme several years ago, when it was backed by Democrats.
The result? Income tax cuts that are less deep than the governor proposed. A sales tax increase that pales in comparison to LePage’s. An effort to toe the current line on property tax relief and state aid to municipalities.
Where LePage swung for the fences, the Republican caucuses seem content to bunt, with an eye for first base.
Both LePage’s and the Republicans’ plans provide income tax relief to all Mainers, but the governor would cut the top marginal rate by 2.2 percentage points, or $581.8 million in the biennium. GOP lawmakers propose cutting 1.45 percentage points, or about $380 million.
LePage wanted to increase the sales tax from the scheduled 5 percent rate to 6.5 percent, and greatly increase the number of goods and services on which it’s applied. The GOP went for a more modest increase to 5.5 percent and kept the tax base as it is, though they do increase the meals and lodging tax from 8 percent to 9 percent — an increase they say will largely be borne by tourists.
Lastly, Republicans in the Legislature opted to keep state aid for municipalities, a program known as revenue sharing. Because Democrats support the program as well, it is likely safe for the next two years. LePage had proposed eliminating it.
“I’m not against the governor’s plan. I really want to support it, because I’m that kind of person, but we really need a budget that can get two-thirds support,” said Rep. Jeff Timberlake, R-Turner, a member of the committee and a leading designer of the GOP’s plan.
Any budget will require two-thirds legislative support because of the timing of the bill, and it also will need two-thirds support to overcome a potential veto from LePage. That means buy-in from both parties.
Given the GOP’s hesitance to give full-throated support to his broad array of tax reforms, LePage’s private frustration with his partisan colleagues is quickly becoming the worst-kept secret in the State House. So a veto isn’t out of the question. After all, he’s vetoed his own budget before.
LePage takes a back seat
In the end, though, LePage’s support isn’t necessarily needed.
The process of budget negotiating is inherently a legislative one, in which the governor can easily be marginalized after his initial proposal is submitted. While LePage set the table for tax reform by wrapping it into his $6.57 billion two-year budget plan — and any successful reform effort will be ultimately attributable to his hammering on the need for change — the negotiations are now largely out of his hands.
“Whatever the tax package, whatever we all decide on, the 13 of us, it is ours,” said Appropriations Chairman Sen. Jim Hamper, R-Oxford, during the panel’s meeting on Friday.
Democrats set out their parameters for tax reform last month, and while there’s plenty of partisan posturing to go around, there aren’t miles between the two camps.
“I do think that there is a path forward with both sides,” said House Speaker Mark Eves, D-North Berwick, on Friday. “I think that is a good indication that we’re going to sit down and try to hammer something out.”
The Democrats’ tax reform proposal also includes income tax cuts, but it focuses the bulk of the cuts on low- and middle-income earners while maintaining the current, higher rate on Maine’s wealthiest.
Eves said that whatever budget is adopted will have to target tax relief to Maine’s middle class in order to receive Democrats’ support. He also said he isn’t interested in eliminating the estate tax or cutting the corporate income tax, both of which are in the governor’s proposal and the GOP’s plan.
Incremental change possible
With three competing plans and 186 lawmakers to corral before a budget can be passed, achieving meaningful tax reform — the largest policy proposal this session — is still going to be an uphill battle.
For the first time, there seems to be a blurry outline of a potential deal taking place.
Municipal revenue sharing is in, given both parties’ desire to keep the program. LePage’s controversial plan to tax nonprofits is out, after the Appropriations Committee rejected it this week. A sweeping expansion of the sales tax base also is likely out of the question, according to Eves, who said the GOP’s reluctance to adopt it would be mirrored by his own party, which had previously ceded the ground on that issue to LePage.
Perhaps most importantly, some manner of income tax cuts, paid for by some level of increased sales tax revenue, remains possible.
For now, negotiations among party leadership and members of Appropriations continue to heat up. Hamper has said he wants the committee’s budget proposal, which will go out for votes by the full Legislature, to be finished by May 22. By law, a deal must be passed by June 30, or else a government shutdown.
Two former members of Appropriations — Republican Sen. Pat Flood of Winthrop and Democratic Rep. Mike Carey of Lewiston — both said they trust the committee to hash out a deal despite the recent history of failure when it comes to tax reform.
“Everybody who lives in Maine and who visits Maine pays taxes,” Carey said Friday. “This affects everybody, and that makes change hard. But all three groups here have put forward a serious proposal, and I’m optimistic.”
Flood was similarly optimistic but said those calling for substantial change, such as the governor and the Maine Chamber of Commerce, shouldn’t hold their breath.
“Chances are pretty good that if you made incremental changes to income tax and sales tax, there is great likelihood that two-thirds would feel good about it,” he said. “But that’s the sweet spot they’ve got to find. So I think it will be incremental — productive, and helpful, but probably not dramatic.”
Follow Mario Moretto on Twitter at @riocarmine.