AUGUSTA (AP) – Baldacci administration officials went before a legislative panel Monday to flesh out parts of the governor’s proposal for phasing out a personal property tax on certain business equipment and launching a gradual series of reductions in personal income taxes.

The Senate chairman of the Taxation Committee, Democrat Joseph Perry of Bangor, said the income tax piece might slide easily into a mix of related measures that have been brought forth by various legislators.

But the battle lines already evident were more fully drawn between business groups enthusiastically favoring an end to the business equipment tax as a spur to investment and municipal officials warning that an erosion of the local tax base would push more of a burden onto residential property taxpayers.

Rosaire Pelletier, group controller for Fraser Papers and acting controller for Katahdin Paper Co., submitted testimony crediting a state Business Equipment Tax Reimbursement program for making substantial new investments possible.

“We must fight for BETR funding every year,” Pelletier said. “I don’t want to risk the chance BETR will not be funded or cut in the future. We must eliminate the tax now.”

A counter view came in a letter from Phil Nadeau, Lewiston assistant city administrator.

“What is most distressing about L.D. 1660 is that we are once again faced with the prospect of explaining to local taxpayers why our city, and other service centers, cannot sustain local service needs in the face of ongoing legislative attempts to reduce local revenue-generating opportunities,” he wrote.

The governor’s plan calls for reducing the state’s top marginal income tax rate from 8.5 percent – higher than all but five states, according to administration officials – to 8.45 percent. Baldacci also urged an increase in a low-income tax credit, saying such a step could move 40,000 people off the income tax rolls.

The governor said individual income tax rates could be reduced by 12 percent over 13 years. To pay for the proposed income tax changes, the governor would suspend the indexing of individual income tax brackets for five years.

Baldacci’s plan also envisions a prospective repeal of personal property taxes on BETR-qualified business equipment. Qualified business equipment would be tax-exempt if first put into use on or after April 1, 2007.

The state would reimburse municipalities for lost property tax revenue at a level of 75 percent in 2007 and 2008 and at 50 percent thereafter.

Property still in service when its 12-year BETR entitlement ends would also become exempt and the state would fully reimburse towns for that property, according to State Planning Office Director Martha Freeman.

“Perhaps municipalities, like the state, will need to continue their frugal ways,” Freeman told the committee. “But the goal is to increase total valuation for towns through the development that accompanies new investment and new jobs.”

One introduced by independent Rep. Richard Woodbury of Yarmouth, who is the House chairman of the panel, and Perry would lower the sales tax to 4 percent while broadly expanding it to include untaxed items including grocery staples, energy fuels and amusements, and set the state income tax at a flat 6 percent.

The proposal also would boost levies on beer, wine, cigarettes, bar drinks, prepared meals and lodging.

Earlier this year, lawmakers passed major school funding legislation designed to ease local property tax pressures.