Independent candidate for governor Eliot Cutler announced a tax reform plan Tuesday that he says will reduce property taxes by as much as 40 percent and increase revenue sharing to municipalities by $100 million.
He would pay for his plan by adjusting Maine’s sales tax, which he said is the easiest tax to export to non-residents of Maine.
“The system we have today is neither fair nor smart,” Cutler said in a press conference held in the living room of Portland City Councilor Ed Suslovic, a supporter. “Our people and our state suffer because nothing changes. The two parties are stuck looking at taxes and every other issue only from their own narrow vantage point.”
The centerpiece of Cutler’s plan is a major expansion of the state’s homestead exemption from $10,000 to $50,000. That means a home valued at $200,000 could be taxed at $150,000, saving a homeowner between $500 and $1,000 depending on the community. A $220,000 home in South Portland, for instance, would see a tax reduction of $550, or 16 percent, Cutler said. Homes that are closer to the median value benefit most, and those are usually owned by low- to middle-class Mainers.
Paired with the expanded homestead exemption, Cutler wants to increase revenue sharing to municipalities from $85 million in 2015 to $185 million by changing the program to a revenue rebate that he says would better target benefits to Maine towns. Communities with lower property values per capita would get more revenue sharing. While that change would likely result in modest increases in property taxes in communities, Cutler said it would be more than offset by the increased homestead exemption.
To pay for these changes, Cutler said he would increase sales taxes. He outlined two options, both of which would generate about $180 million in annual revenue to offset the property tax reduction.
The first option would increase Maine’s sales tax from 5 percent to 7 percent from May 1 to Oct. 30, the block of time when more tourists visit Maine. That option also would make permanent the 8 percent tax on meals and lodging that was passed temporarily earlier this year to help pass the state budget and would eliminate sales tax exemptions on amusement and recreational activities such as golf, skiing and movie theater tickets.
The second option would be to simply increase Maine’s sales tax from 5 percent to 6 percent.
Any plan would require cooperation from lawmakers.
Greg Dugal, head of the Maine Innkeepers Association and the Maine Restaurant Association, said he wasn’t surprised to see Cutler’s plan target the meals and lodging tax but said it would face a tough fight in the Legislature. He said the notion that only non-residents bear the brunt of increased sales taxes is not true.
“And I think you could argue that sales taxes are more regressive than property taxes,” Dugal said.
Cutler acknowledged that tax reform is not without political risk and he challenged his opponents, Republican Gov. Paul LePage and Democratic U.S. Rep. Mike Michaud, to pick his plan apart.
“I imagine that my opponents and their parties will find fault with this plan,” he said. “That’s fine, and I’m ready to defend and debate the merits of this plan with Representative Michaud and Governor LePage anytime, anywhere.”
Brent Littlefield, LePage’s senior campaign adviser, said the governor is the only candidate with a record of reducing taxes. He pointed out that Le- Page passed the largest income tax cut in Maine history in 2011, although his opponents havezsaid those cuts created a $400 million budget shortfall that was never paid for and has led to increased property taxes in communities.
“Eliot Cutler would like to dictate from on high but he has no control over local governments,” Littlefield said.
Addressing the revenue side of Cutler’s plan, Littlefield said it “robs Peter to pay Paul,” and he referred to the tax on recreation as a “fun tax,” a phrase Republicans have often used.
Lizzy Reinholt, Michaud’s campaign spokeswoman, said Cutler’s tax plan, while substantive, “picks winners and losers.”
“He risks leaving municipalities on the hook for the bill,” she said, referring to the fact that some towns would see their tax rates go up.
Cutler’s plan shares similarities with a reform plan that was passed by the Democratic-led Legislature in 2009 and then rejected by voters the next year at referendum and with a plan offered last year by a group of lawmakers known as the “Gang of 11,” which also failed.
Sen. Dick Woodbury, an independent from Yarmouth, was involved in both efforts and has been a leader on tax policy in Augusta. He attended Cutler’s event on Tuesday and said the candidate’s tax plan is better than anything he has seen.
“There will always be interest groups that want to attack pieces of something like this, but on the broader merits, this is fair and smart,” Woodbury said.