AUGUSTA – If not this, what? If not now, when?
Those were the prevailing sentiments Friday of lawmakers on the Legislature’s Taxation Committee, which inched forward on a dramatic tax overhaul proposal that aims to slash the state’s income tax rate in half and make other sweeping changes, including raising sales and excise taxes and eliminating exemptions.
The proposal, released last week by a bipartisan coalition of 11 lawmakers, appeared to founder in the face of swift opposition from affected industry groups and a tepid response from Democratic and Republican legislative leaders. While several lawmakers on the Taxation Committee remain cool or hostile to the plan, the panel on Friday gave it a brief reprieve when it initiated a full cost analysis of the proposal by Maine Revenue Services.
The move followed prolonged and occasionally agonized deliberations by the committee, which considered killing the bill, L.D. 1496, or carrying it over until next session. Either outcome may yet await the bill, but lawmakers still want to see if elements of the plan can be incorporated into a solution to solve the state’s next two-year budget.
The committee move was a small but significant step, said the bill’s supporters.
“I really think this has legs,” Rep. Gary Knight, R-Livermore Falls, the bill’s sponsor and a member of the committee. “You heard them in there. If we don’t do this, then what do we do? If we don’t this now, then when do we do it?”
Knight and the bill’s architect, Sen. Richard Woodbury, an independent from Yarmouth, told the committee that the bill wasn’t initially intended to be a budget solution, but to modernize the state’s tax code.
However, alternatives to Gov. Paul LePage’s proposed $6.2 billion budget proposal has thus far proven elusive. Critics believe the governor’s plan will lead to significant property tax increases because it suspends more than $200 million in municipal revenue sharing and cuts other tax relief schemes.
The Democratic majority has put forward proposals that either suspend the 2011 tax cuts the governor’s budget is designed to protect or raise revenues through higher sales, lodging and meal taxes. However, Republicans, including Knight, have rejected those proposals because they aren’t accompanied by additional tax cuts.
The coalition’s plan slashes the state’s income tax rate in half to 4 percent and increases the homestead exemption from $10,000 to $50,000 for property tax relief. The cuts are paid for by increased sales taxes and broadening the sales base through the elimination of exemptions, such as groceries and services.
The plan has made enemies by proposing to tax a host of services currently exempt and raising excise taxes on beer, wine and tobacco products.
It also appeared that the plan would tax heating oil and other home heating products. However, Woodbury and Knight said Friday that those exemptions were no longer targeted.
The proposal remains controversial because of its scope and unknown consequences. Nonetheless, most lawmakers on the Taxation Committee were unwilling to do away with it on Friday.
“If not this, then what other plan do we have?” asked Rep. Donald G. Marean, R-Hollis.
“I don’t want to let go of this, not this session,” said Rep. Joseph Brooks, an independent from Winterport.
Brooks, who has served three previous terms in the Legislature, said the tax reform proposal was the first one he’s seen that has the potential for “major change.”
The scope and timing of the proposal worried others.
“I don’t think this bill is ready for prime time,” said Sen. Doug Thomas, R-Ripley, who was ready to kill the bill on Friday.
The bill’s supporters unveiled Friday a potential phased-in implementation of the plan. It included the proposed property tax exemption going into effect July 1, along with the restoration of municipal revenue sharing. A 1 percent increase in sales tax and the meals tax would also go into effect July 1, along with a 10 percent lodging tax (up from 7 percent) and excise tax increases on beer, wine and tobacco.
The phased implementation would also cut the income tax to 5 percent beginning Jan. 1, 2014, and initiate the tax fairness credit program designed to mitigate the impact of increased consumption taxes on low- and middle-income families. The removal of a host of sales tax exemptions would also begin in 2014.
The full 4 percent income tax cut, the repeal of the estate tax and other expansion of the sales tax base wouldn’t go into effect until 2015 after a review by the Legislature.
The implementation concerned several lawmakers, including Thomas, who worried the plan paved the way for tax increases while leaving open the possibility that the cuts wouldn’t be enacted.
“We could end up with the bad and not see the good until I’m dead and gone,” Thomas said.
Sen. Anne Haskell, D-Portland, co-chairwoman of the committee, was also skeptical. She said she appreciated the enthusiasm of the bill’s proponents, but worried the plan was too risky and too late in the session.
“I find myself in the odd position of being a pessimist here,” she said.
There were a number of skeptics on the committee, but most lawmakers were persuaded to initiate the Maine Revenue Services analysis.
Those results, the official language of the bill and additional details about targeted sales tax exemptions could be released next week.
Haskell said the committee may hold another public hearing on the proposal.
Steve Mistler can be contacted at 620-7016 or at: