AUGUSTA – Taxpayers hoping for an overhaul of Maine’s tax structure likely will have to wait at least another year. The Legislature passed Gov. John Baldacci’s property tax relief package Thursday.
Despite general support for reducing Maine’s income tax rates, it won’t happen this session, legislative leaders say. Similarly, many agree the state’s sales tax’s coverage should be expanded. But any efforts to do that also are likely to be put on hold, they say.
One notable exception is a proposed change to the personal property tax on business equipment and machinery.
Many legislators and Baldacci have suggested repeal of that tax as well as of the Business Equipment Tax Refund, a state program that reimburses businesses that pay the unpopular equipment tax. Mill towns would be hardest hit, losing out on tax money from paper machines and other expensive industrial equipment.
“I think many people would like to phase it out,” said Senate President Beth Edmonds, D-Freeport. “The question is: How do you do it without harming these communities?”
That action would run counter to the state’s current efforts at providing property tax relief to residents of Maine’s municipalities, she said. Two years ago, Baldacci proposed a long-term phaseout of both that tax and the refund program.
“I think that’s something we could take up this year,” said Sen. Joseph Perry, D-Bangor, who is Senate chairman of the Taxation Committee.
Baldacci’s full plate’
Asked whether the Legislature is likely to take action on the personal property tax on business equipment and BETR program, Lee Umphrey, Baldacci’s spokesman, nodded agreement. And if that bill landed on Baldacci’s desk, he would sign it, Umphrey said.
But Umphrey ruled out the possibility of further tax reform efforts this year. He said Baldacci planned to devote the remainder of this session to passing his state budget. He also will lobby the Legislature to approve a bond package in the wake of last year’s failure to secure a needed two-thirds vote for state borrowing.
“That’s a full plate,” Umphrey said. “The governor has recognized there needs to be further tax reform,” he said. But trying to do it this session would be perilous. “It’s too much.”
Perry said there is support among some members of the Joint Select Committee on Property Tax Reform for broadening the sales tax base and even increasing the tax in order to pay for a decrease in the income tax rate. That committee was responsible for cobbling together the compromise tax-relief package.
But Umphrey said the governor wouldn’t support adding items or services to the sales tax nor raising the rate, even if all the money were dedicated to decreasing the income tax rates.
“I don’t think that will ever be part of his agenda,” Umphrey said. “Right now he’s dead set against it.”
Spending caps’ impact
Observers say Baldacci might be more receptive to such a proposal if he were to win a second term and didn’t have to worry about a tax hike or new taxes hindering his chances of re-election.
Baldacci’s focus on the budget and bonds, as well as his opposition to changes to the sales tax, make the chances of any other major tax reforms this session “impossible,” Perry said.
If spending caps on state, local and county government passed this week by state lawmakers prove successful, Perry said that would enhance the Legislature’s credibility in undertaking future major tax reforms.
Dana Connors, president of the Maine State Chamber of Commerce, agreed it is important to give Baldacci’s tax relief package, including spending caps, time to bear fruit.
The chamber had proposed a detailed tax relief plan of its own, before throwing its support last week behind Baldacci’s legislation.
Still, Connors said property tax relief was just the first step on the path to serious tax reform.
“It was the first bite of the apple, not the whole apple,” he said. “The job’s not done.”
Connors said the Legislature should build on its momentum and not let the issue languish.
Senate President Edmonds said there is interest among lawmakers in her chamber in examining the three big slices of the state revenue pie.
“Those three areas – property tax, income tax and sales tax – have a number of people who have strong feelings that they need to be amended,” Edmonds said, noting Maine has the narrowest sales tax base in the country.
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