AUGUSTA – The two chairmen of the Taxation Committee sought to prime the pump of legislative debate Monday, unveiling a package that would fix the state income tax at a flat 6 percent, lower the sales tax to 4 percent while broadly expanding it to include untaxed items including grocery staples, energy fuels and amusements.
The proposal would also boost levies on beer, wine, cigarettes, bar drinks, prepared meals and lodging.
Sen. Joseph Perry, D-Bangor, and Rep. Richard Woodbury, an independent from Yarmouth, cast their proposal as a centerpiece for discussion and a logical follow-up to tax relief legislation enacted earlier this year that focused on school funding.
“While L.D. 1 focused on property taxes and lowering the overall burden of taxes in Maine, it did not address many of the broader issues of tax restructuring and tax reform. … we are initiating a process to consider tax reform in its broader context,” the committee chairmen wrote in an introductory outline of their package.
The proposal put forth by Perry and Woodbury goes into a mix with more than half a dozen other tax reform bills and comes as Gov. John Baldacci continues to mull a follow-up measure to LD 1 of his own.
The chairmen’s package would hike the maximum benefit of Maine’s circuit-breaker program providing property tax relief to $3,000 and match the exemption from the estate tax with federal levels.
The chairmen said their plan was meant to be revenue neutral, but had not been costed out yet by Maine Revenue Services.
Anticipating questions, they said coupling a flat income tax with a “generous” earned income tax credit would cushion the impact of reduced progressivity in rates for lower-income taxpayers.
As for broadening the sales tax, they wrote: “We believe that the positive incentives from having lower income and sales tax rates far outweigh the potential disadvantages to business from the expanded sales tax base.”
Conceding that the idea of taxing groceries and other items raises concerns, they said that “only through a massive broadening of the sales tax base can we achieve the fundamental rebalancing and notably lower tax rates that are included in this plan.”
The chairmen’s proposal was circulating as Republicans held a low-key Tax Freedom Day rally on the State House steps, shadowed by half a dozen Democratic counter-demonstrators.
After the rally, Republican Sens. Peter Mills of Cornville and Karl Turner of Cumberland said more than $60,000 had been pledged to a people’s veto effort aimed at blocking a $450 million revenue bonding provision in a new state budget slated to take effect July 1.
Mills said it remained unclear whether the controversial borrowing plan would also be challenged in court.
Baldacci spokesman Lee Umphrey, asked for the administration’s view of the package put forth by the Taxation Committee chairmen, said it appeared to coincide with the governor’s desire to ease Maine’s tax burden.
“We all share a common goal and collective action is the best way to achieve that,” Umphrey said.
Meanwhile, the administration issued a monthly report showing that General Fund revenue for March was under target by $12.7 million, or 7.6 percent, dropping year-to-date revenue to $14.5 million under budget, or 0.8 percent.
Administration officials attributed most of the negative variance to the sales tax line and the insurance premium tax.
“It’s clear that continuously high home heating oil bills and a late spring have affected the Maine consumer,” the monthly report from Commissioner Rebecca Wyke of the Department of Administrative and Financial Services said.
“Sales tax revenue during the first quarter of calendar year 2005 is flat compared to the same period last year, and 5.7 percent below budget. … With the state unemployment holding steady at approximately 4.5 percent and winter heating season now over, it’s expected that consumer spending will return to a level more consistent with the current revenue forecast,” the monthly report said.
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