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Legislators unveil tax-reform proposal

AUGUSTA — Senate President Justin Alfond, D-Portland, heralded a tax-reform proposal unveiled Wednesday as an example of bipartisanship in the Maine Legislature.
Proponents of the measure said the proposal will "fundamentally" transform the state's tax system.
The so-called "Gang of 11" unveiled its bipartisan tax reform proposal Wednesday at the State House, saying the measure is aimed at reducing the income and property tax burden on Maine's residents, releasing the strain on household budgets and injecting dollars into Maine's economy, while "incentivizing residency and business in Maine."
The bill's sponsor, Rep. Gary Knight, R-Livermore, in his opening remarks said, "There have been tax plans that came before this one but this one is vitally different. It has the blood, sweat and tears of a bipartisan effort. While polarization may have plagued Washington, it hasn't hit Augusta."
The effort, led by Independent Senator Richard Woodbury of Yarmouth, is endorsed by Republicans and Democrats, including individual members of Democratic and Republican leadership.
Sen. Alfond, in a weekly media sitdown, said, "What we're seeing this week is what we've fostered the entire 126th legislature, bipartisanship, people working together across the aisle."
In a press release, proponents trumpeted the proposal's buy-in.
"Once the elections were over, people expected us to come to Augusta and work together, and that is exactly what we are doing," said Sen. Roger Katz of Augusta, who also serves as the Assistant Minority Leader. "We have come together around a plan that will not only help solve this year's budget but fundamentally transforms our antiquated tax system."
Standing together, the group of 11 outlined their proposal.
"We had a choice: apply more duct tape on the broken pieces or fix it. We chose to fix it and modernize it for the economy of today," said Woodbury. "This is a plan where Mainers pay less. It's a plan that encourages, rewards, and incentivizes people who live and work in this great state."
The measure lowers income taxes to 4 percent for all Mainers. It also achieves "tax progressivity" through two new tax credits: a sales tax fairness credit, and a property tax fairness credit. It raises the sales tax by 1 percent and broadens it to apply to nearly all consumer purchases with the exception of health care and education.
"Our state has experienced great challenges but we know, often times, through crisis comes opportunity," said Sen. Seth Goodall of Richmond, who also serves as the Senate Majority Leader. "What is most exciting about this proposal is that it takes in to consideration the entire picture of how much tax a person pays—from sales, income, and finally property tax — this is crucial."
Goodall, also part of the media sitdown in Alfond's office, said as an individual legislator, he saw the goal is a "stable, fair system."
"Even the governor has acknowledged that he is not a fan of his own budget. This makes a path forward if the legislature so chooses," Goodall said.
Goodall agreed the proposal is bipartisan, a common theme on the day.
Alfond said, "I'm interested because it's being brought forth by 11 members, five Republicans, five Democrats, an Independent, this doesn't happen often. It hasn't happened in my four years, it hasn't happened around tax proposals in the past. I think that uniqueness gives me a little more curiosity."
Alfond said he had yet to delve into the details of the plan, saying, "I look forward to learning more."
But he added, "I think we've heard an outcry from all legislators and from the public around the suspension of revenue sharing, people do not want their property taxes to increase. I think what this plan does is try to look at revenue sharing through the property tax system."
Architects of the plan said it lowers property taxes by creating a $50,000 homestead exemption to all Mainers, and exports a higher portion of the tax burden to non-residents.
"A fair, comprehensive, pro-growth reform package matters more in this economy than ever before," said Woodbury in the press release.
The group statement argued the plan creates a pro-growth economic environment and encourages business in Maine by reducing the corporate tax rate to 7.5 percent and eliminates the estate tax.
Katz said, "If this were easy, it would have been done already. This debate will be a good test for the legislature. How far will our gaze extend? Will we see only as far as the next election, or will we have the vision to look out to the next generation."
The proposal, "An Act to Modernize and Simplify the Tax Code," will be referred to the Taxation committee in the coming days.
Not everyone embraced the proposal with open arms. Mike Tipping, communications director for the Maine People's Alliance, a progressive group, released a press release giving the plan mixed reviews.
"Up to this point, Republicans had tried to disguise some of the tax increases in Governor LePage's budget proposal by forcing towns to do the dirty work of increasing property taxes in order to deal with the elimination of revenue sharing," said Maine People's Alliance executive director Jesse Graham. "This new proposal does away with that fiction by recognizing what Maine people and town officials have been telling them: it's just not fair to make the poor and middle class pick up the tab for tax breaks for the wealthy through hikes in property taxes."
Unfortunately, while the new proposal does mitigate LePage's proposed property tax increases, it does so primarily by increasing the state sales tax, which is also inherently regressive, the alliance argued. The plan also contains an additional income tax cut that would primarily benefit the wealthy and eliminates the estate tax, which only affects a small number of millionaires each year, the group stated.
LePage has argued in the past that cities are not required to increase property taxes based on a lapse in revenue sharing, arguing that those are local decisions.
Another group took aim at the sales tax proposals. The income tax provision would be a hit with small business but raising and expanding the sales tax would be an unforced error, said the National Federation of Independent Business in a press release in response to the proposal to reform the tax system in Maine.
"The income tax is a small business tax and we're encouraged that lawmakers are talking seriously about reducing that burden in order to boost our competitiveness," said NFIB State Director David Clough in the press release. "But we're puzzled by the proposal to expand the sales tax and increase other taxes as a way to make up the revenue.  That would counteract the effect of lower income taxes and mitigate the effectiveness of the reform."
LePage recently issued a letter to municipal leaders, acknowledging in the letter the opposition many mayors, city managers and selectmen have against his budget plan, and admitting it is not a budget he enjoyed putting forward.
"The problem is there are only three large budget areas – education, welfare and revenue sharing," wrote Governor LePage. "We cannot cut $200 million from debt service — the state must pay its bills. The Judicial Branch costs $100 million — courts are already behind, and I will not cut them further. Other core state functions — State Police, Corrections, our Natural Resource agencies — have been cut to the bone to feed continued growth in education and welfare spending, and they cannot be cut further without reducing public safety or our future economy. That leaves only the three large pots of money, and I chose revenue sharing."
In the letter, the governor attached total general fund appropriations for Fiscal Year 2014-15, which shows the bulk of the budget — 44.8 percent — allocated to education. The Department of Health and Human Services uses 35.2 percent, and the remainder of state government accounts for 20 percent of general fund spending, he said.

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