Bipartisan group showcases Maine tax overhaul idea

AUGUSTA, Maine (AP) -- A bipartisan group of Maine lawmakers showcased a proposal Wednesday to overhaul the state's tax code by shifting more of the load to nonresidents, halving the top income tax rate while reducing deductions, increasing the sales tax and bolstering property tax relief.

"This is huge," said the sponsor, Rep. Gary Knight, R-Livermore Falls. "Polarization and gridlock have hampered Washington. But not us, and not this time."

The collaborative work by five Democrats, five Republicans and one independent sets the stage for what promises to be an exhaustive review by the Legislature in the remaining weeks of the session. Supporters would also have to win over an unenthusiastic Republican Gov. Paul LePage.

A leading force behind the plan, independent Sen. Dick Woodbury of Yarmouth, said the proposed changes are pro-growth, fair and provide tax relief to Mainers. He called the idea a "better tax system" that "will be transformative for Maine's economy."

"When we began this process we had a choice. We could apply more duct tape to the many broken parts in our outdated tax system, or we could comprehensively overhaul the system in a way that fits and energizes the modern economy of our state," he said. "And we chose to fix the system."

The proposal's major components call for a maximum 4 percent individual income tax rate, half of the present top rate of 8 percent, and elimination of nearly all deductions from income. The corporate income tax rate would be lowered from 8.93 percent to 7.5 percent. The estate tax would be eliminated.

To help make up for the lost revenues, the state sales tax would rise from 5 percent to 6 percent, and expanded to nearly all consumer purchases, except for those associated with health care and education.

Supporters emphasized that the bill's property tax relief component, which seeks to increase the state's homestead exemption from $10,000 to $50,000 of the property's value. The change would give most resident homeowners property reductions of more than $500, and many others $1,000 or more, supporters said in a summary of the plan.

Neither the Democratic nor Republican caucus took a stand on the proposed overhaul, recognizing that individual members of both parties were taking varied positions on it.

"I haven't seen the plan," said Senate President Justin Alfond, D-Portland, when asked for his reaction to it. "At this point I look forward to learning more."

House Speaker Mark Eves, D-North Berwick, said: "We'll see where it takes us."

LePage, who was briefed on the proposal by its supporters, "is not jumping up and down about it," said his spokeswoman, Adrienne Bennett. "He presented a balanced budget that did not include raising taxes. The governor is not interested in raising taxes."

Supporters say their plan would balance the $6.3 billion two-year budget under consideration now. The reduction in income taxes would total $500 million, and tax increases would total $700 million, said Democratic Senate Majority Leader Seth Goodall. But $200 million of the new revenues would go to property tax relief, and much of that would be paid by nonresidents, he said.

The overhaul seeks to raise about $300 million in additional revenues annually through increases in sales and excise tax rates. Service provider taxes would rise from 5 percent to 6 percent, cigarette taxes would rise $2 to $3.50 a pack. The tax on prepared meals would rise from 7 percent to 8 percent. Lodging taxes would also rise from 7 percent to 8 percent, with an additional 2 percent going to tourism promotion. Dozens of consumer purchases, including amusements and recreational services; groceries; oil, gas and wood for cooking and heating; barber shop and beauty parlor services and funeral services, would be taxable.

Not every member of the bipartisan group was pleased with every component of the proposal.

"There are things in there I'm not excited about," said Goodall, of Richmond. But Goodall said the package, taken as a whole, would provide stability to Maine's budget-making process, which is marked by repeated revenue shortfalls that must be filled. It would also set the state on a path toward providing real and lasting property tax relief, he said