Bipartisan tax reform proposal draws bipartisan opposition

AUGUSTA — More details on a bipartisan proposal to overhaul Maine's tax system came out Wednesday, but so did bipartisan opposition to the plan that would increase and expand the state's sales tax.

Highlights of "An Act to Modernize and Simplify Maine's Tax Code:"

* Creates a flat, 4 percent income-tax rate for all taxpayers.

* Reduces the corporate income-tax rate from 8.93 percent to 7.5 percent.

* Increases the state's sales tax from 5 percent to 6 percent.

* Expands sales tax to include almost all consumer purchases, including groceries and heating fuel.

* Creates a tax fairness credit that allows an up to $1,000 refundable sales-tax credit for low-income families.

* Increases the state's Homestead Exemption to $50,000.

* Eliminates the estate tax. 

* Increases funding for tourism promotion from $10 million per year to $16 million per year.

* Creates a sales-tax collector fee of  0.5 percent to compensate businesses that collect sales taxes on behalf of the state.

"I'm going to vehemently oppose this," Sen. Troy Jackson, D-Allagash, said Wednesday after a news conference on the measure.

Jackson, the Senate's assistant majority leader, said expansion of the sales tax to include things that are currently sales-tax free, such as groceries and heating fuel, is a non-starter for him.

"This may work in a perfect world," Jackson said, "but we aren't in a perfect world." He acknowledged the proposal included a sales tax rebate program for those who meet certain guidelines but said most poor people in Maine didn't have the money to pay up-front to wait for a rebate from the government.

"We tried to do this four years ago and people objected," Jackson said. He said the Legislature had other ways to address one of the key highlights of the proposal — a full restoration of state revenue-sharing with local towns and cities.

And while the proponents of the bill — the so-called Gang of 11, which includes five Democrats, five Republicans and one independent — were touting the proposal's virtues, others, including leadership on both sides of the aisle and the Maine Chamber of Commerce, were taking a wait-and-see approach to the measure.

Dana Connors, the chamber's executive director, said the chamber's board of directors listened intently to the proposal a few days ago but needs more information before deciding whether to endorse it.

Connors said the group was well-received for being willing to tackle the long-overdue issue of tax reform in Maine.

"They were received with great respect for their willingness to step up and deal with an issue that we for a long time have made attempts to get our arms around and for one reason or another have failed," Connors said.

He said chamber officials would study the proposal closely in hopes of formulating a position on the bill, but they needed more details.

"We need a little more than the concept," Connors said. "We need some of the language, the detail, the definitions to look at it both for the opportunities it presents and to find what are the difficulties."

Senate President Justin Alfond, D-Portland, also reserved endorsement of the proposal. But, like Connors, he praised the bipartisan nature of the work.

"I'm not ready to do anything other than say I want to look at the plan and understand how it affects Maine people, Maine businesses and I, at this point, look forward to learning more," Alfond said.

Supporters of the bill, including Rep. Nate Libby, D-Lewiston, said while it aims to fix a portion of the state's immediate two-year budget shortfall — estimated at $940 million — the legislation is intended to get the state out of the vicious circle of going from budget shortfall to budget shortfall.

Libby, one of the Gang of 11, and others said the state's current tax regime is antiquated and disproportionate in the types of taxes it collects, depending too much on income and property taxes.

Maine's tax system was designed in 1951, and over the years exemptions have been carved out for various special interests, leaving income-tax payers to make up the difference, Libby said.

He said simplifying the income tax code is a big advantage to the plan and that almost all income-tax payers could file a single-page state return under the proposal.

Rep. Peggy Rotundo, D-Lewiston, House chairwoman of the Legislature's budget-writing Appropriations and Financial Affairs Committee, said the goal of moving the state out of a constant budget crisis is laudable. 

Maine's tax system can create erratic revenue flows because it is so closely linked to the general economy. In a poor economy, revenue, especially from income taxes and sales taxes on expensive items including autos, can slip dramatically.

Rotundo, like other legislative leaders, said she was still reviewing the details but echoed what others said in praising the bipartisan work.

Rep. Lance Harvell, R-Farmington, another member of the Gang of 11, said it's the first bipartisan tax bill he's seen in his career. He said the various exemptions throughout Maine's tax code make it complex and difficult to understand for average tax filers.

"The key is our tax code has been a playground for politicians for 50 years," Harvell said. He said the code is based largely on a manufacturing and industrial economy that no longer exists.

"We've changed. The country has changed," Harvell said. "We've changed from an industrial-based to a service-based (economy), our demographics are aging. That's part of what's driving government growth. We've toyed with the tax code by exempting this group and then that group and, unless you get a pro-growth policy, it's a slow death."

Harvell and other supporters of the measure believe it would promote more people making the state their primary residence by lowering the income tax rate in Maine to a flat 4 percent. That would drive up income- and property-tax revenue.

Harvell called the state's current tax code, "a hodgepodge piece of Swiss cheese."

Lawmakers behind the tax-reform plan said they intend to move the measure forward during the current legislative session.

A draft of the bill's text is expected to be ready for review later this week. Public hearings on the measure would likely be scheduled for mid to late May.

sthistle@sunjournal.com

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Comments

 's picture

Bottom Line

It takes $700 million more out of the pockets of the taxpayers. Some reform, eh?

No wonder Peggy likes it.

Zack Lenhert's picture

Where does Peggy say she

Where does Peggy say she likes this?

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