Democratic leaders in the Legislature are planning a push for tax reform this session, revamping an earlier proposal to the chagrin of some Republicans who say it doesn’t do enough to reduce the tax burden on Maine citizens at a time when they really need it.
The core of the Democrats’ plan is reducing the state’s top income tax rate while broadening the sales tax to include more discretionary items and some services. The proposal, which is still under development, would also provide a tax credit for lower-income Mainers to ensure they are not hurt by the new flat-rate system.
House Majority Leader John Piotti, D-Unity, said the plan would generate up to $70 million in overall tax relief for Mainers by shifting some tax revenue to goods and services used by visitors.
“It’s not only a matter of how much you collect in taxes. It’s a matter of what kind of taxes you collect,” said Piotti. “Our income tax rate can be a disincentive for people to locate here or move businesses here.”
A similar plan, which was written by the Taxation Committee in 2007 and supported by members of both parties, gained House approval but failed in the Senate. Piotti and others hope that leadership spearheading this new proposal will lead to a more solid, and possibly bipartisan, base of support.
Senate Minority Leader Kevin Raye, R-Perry, said the key for his party will be whether the measure creates tax relief without merely shifting the burden from one group to another.
“I’m never comfortable to dismiss something out of hand,” he said. “I don’t have all the particulars of it, but I’ve heard from a number of people, particularly in the tourism industry and others, and they’re very vulnerable at the moment.”
Raye said his caucus has not yet addressed the issue in detail because so far there is no proposal to discuss.
Sen. Richard Nass, R-Acton, the Taxation Committee’s ranking Senate Republican, supported the tax reform bill in 2007, but said his support won’t be so forthcoming this time.
“It’s something we need to do but there’s not the internal oomph or the political will to do it, at least on our side,” said Nass. “The economy has changed. Those folks who are going to be opposed to the sales tax are going to be able to scream loudly. It’s still a valid proposal, but it’s not valid now.”
Rep. Thomas Watson, D-Bath, co-chairman of the Taxation Committee, said he and others are trying to come up with a proposal that will benefit the maximum number of Maine people.
“We’re trying to find that sweet spot,” said Watson, who hopes to reduce the income tax burden for at least 557,000 of Maine’s 683,000 tax families. “We’re playing with the numbers until we get to the highest number of Maine residents who will see an overall tax decrease.”
Maine’s top income tax rate of 8.5 percent is tied with the District of Columbia as the sixth highest in the nation, according to Jan. 1, 2008 data on the Federation of Tax Administrators’ Web site. This compares unfavorably with New Hampshire, which has no income tax, and Massachusetts, which has a flat rate of 5.3 percent.
In most of the states with higher rates than Maine’s, the top rate kicks in at a higher income. Any Mainer who earns more than $20,150 in taxable income pays the full 8.5 percent. That goes for small businesses, too.
Michael Allen, director of economic research for Maine Revenue Service, said the high income tax can be problematic for Maine.
“I think the trend nationally at the state level is to try to move toward more consumption-based taxes and to try to get the rates on income taxes down,” said Allen. “In general, if you look around the country, states are all looking at trying to get income tax rates down and broaden the sales tax base.”
Piotti said that in addition to Maine’s high income tax, Maine’s “incredibly narrow” sales tax includes only 24 out of 180 items taxed by other states. About one-third of Maine’s sales tax revenue comes from car sales and building supplies, two areas that are hit hard when the economy sours. Broadening the sales tax would soften that impact, said Piotti.
“When you actually explain this to people in detail, most of them say ‘that makes sense,'” said Piotti. “This is not rocket science. Many states have moved in this direction.”
Senate President Libby Mitchell, D-Vassalboro, said a bill will be introduced within a couple weeks.
“We want to have ample time for public debate, public discussion and newspaper discussions so that the public can decide whether or not this is a good idea,” she said. “The Legislature wants the buy-in of our constituents before we go in this direction.”
(Statehouse News Service)
