AUGUSTA — Democratic lawmakers unveiled proposals Thursday to cut income taxes for Mainers earning less than $150,000 a year and expand a popular property tax exemption, while holding the line on taxes for the wealthy and for corporations.
Republican leaders said they “welcome the Democrats to our ongoing conversation” and pledged to review the tax reform plan, but also called for more discussion from all sides about trimming state spending.
The Democrats released their counterproposal exactly three months after Republican Gov. Paul LePage proposed cutting income and corporate taxes while increasing Maine’s sales tax as part of a package he says will improve Maine’s business climate. And the Democratic plan – dubbed “The Better Deal for Maine” – demonstrates that some of LePage’s proposals enjoy bipartisan support.
The Legislature’s Democratic leadership embraced LePage proposals to collect sales tax on more goods and services while eliminating income taxes on military pensions. But Democrats claim their plan will bolster Maine’s middle class while averting cuts to schools and municipalities under a LePage plan they decry as overly generous to the wealthy.
“The Better Deal for Maine builds on Governor Paul LePage’s tax reform plan, but targets it more towards middle-income families,” the plan states. “It rejects the failed top-down economic policies that give tax breaks to the wealthy and corporations at the expense of the rest of us.”
The Democrats’ proposal would lower income tax rates for Mainers earning between $20,900 and $150,000 a year while doubling the Homestead Exemption property tax benefit to $20,000 for all homeowners. The plan also would maintain the state sales tax at 5.5 percent, compared with a 1 percentage point increase sought by LePage.
Democrats also want to increase municipal revenue sharing – compared with LePage’s plan to phase out the program – and rejected the governor’s proposal to collect property taxes on large nonprofit organizations.
Overall, the Democratic plan would provide $120 million in income tax relief to Mainers by fiscal year 2017, compared with the nearly $450 million envisioned in LePage’s plan. The reason for that large discrepancy is Democrats do not offer any tax relief to residents earning more than $150,000 a year, and propose smaller tax reductions than the governor for most other tax brackets.
Brent Littlefield, the governor’s outside policy adviser, dismissed Democrats’ contention that the governor is primarily helping the wealthy and that his budget proposal could harm schools.
“The arguments advanced today were litigated during last year’s election and the Maine voters rejected them,” Littlefield said. “Now is the time to come together and work with Governor LePage on efforts toward eliminating Maine’s income tax and furthering Maine’s economy.”
COMPARING BENEFITS OF PLANS
Democrats said they would pay for the income and property tax relief by broadening the sales tax, maintaining existing tax rates for meals, lodging and car rentals, and by eliminating other exemptions. Lawmakers also said Thursday that, unlike LePage’s plan for a more expansive income tax cut, the Democratic proposal would not create a budget gap in future years.
Republican lawmakers were reserved in their response to the Democrats’ announcement, which appeared to catch the Republican leadership by surprise.
“It’s important that we look at it and give it a fair assessment,” said Senate President Mike Thibodeau, R-Winterport. “But make no mistake, Republicans recognize there are three legs to the stool: There is sales tax, there is the property tax and there is the income tax. And we are interested in reducing the overall tax burden to Mainers.”
The Democrats’ plan provides a long-awaited – and some would say long-overdue – political counterpoint to the tax proposals contained in LePage’s $6.57 billion budget, which has dominated discussion in Augusta since its release in early January.
Democrats have repeatedly accused LePage of catering his tax breaks to the wealthy, noting that the governor’s plan would provide more than $10,000 in relief to those earning $400,000 a year, compared with $145 for Mainers earning $40,000. But until Thursday, Democrats had yet to offer a specific alternative.
“I think Maine people are going to very clearly see who benefits when you stack these plans up against each other,” said Sen. Justin Alfond, D-Portland, the Senate minority leader.
HOW MUCH INCOME TAX RELIEF?
The dueling tax reform plans, with their clear differences over taxing the wealthy and corporations, set the stage for the latest battle in a perennial debate between the parties over the best way to build Maine’s economy. With Republicans controlling the Senate and Democrats holding the House – plus the often-unpredictable LePage in the governor’s office – the parties must resolve those major differences to pass a two-year budget before the new fiscal year begins July 1.
It is clear that LePage will not get everything he wanted in his budget. It appears the Legislature will, however, send him a budget that cuts income taxes for most Mainers. The questions are by how much, and how those tax breaks should be distributed across Maine’s income spectrum.
LePage is likely to push back against any attempt to reduce the tax relief he proposed for wealthier Mainers and businesses. The Republican campaigned on tax cuts and could veto the Legislature’s final budget compromise, thereby requiring lawmakers to garner two-thirds votes in each chamber to override the veto.
“When we are talking about taxes on businesses, we are talking about taxes on job creators,” Littlefield said.
CONCERN OVER SPENDING LEVELS
The governor proposed cutting the top income tax rate from 7.95 percent to 5.75 percent by 2019, immediately eliminating all income taxes on military pensions and phasing out the estate tax. He argues that those proposals, along with his plans to reduce the corporate income tax, are critical to attracting businesses and ensuring more wealthy retirees reside in Maine.
To offset those revenue losses, LePage suggested increasing the sales tax rate to 6.5 percent from 5.5 percent and eliminating sales tax exemptions on hundreds of goods and services. LePage also has called for broadening the sales tax base in part to capture more revenues from tourists.
But the governor’s plan has received a chilly reception from some lawmakers within his own caucus. That dynamic was evident Thursday when Republican legislative leaders raised concerns about spending levels in the governor’s budget.
“From my perspective, I think that is the most important part of the conversation that hasn’t really been had at this point, which is the size of state government and scope of state government,” said Rep. Kenneth Fredette, R-Newport, the House minority leader. “It’s really been about taxes, how do you raise revenue, how do you provide tax cuts. … I think that’s an important piece of this that has been overlooked.”
Democrats hinted that they plan to take their own tax reform proposal on the road by having public forums similar to the town hall-style events held by LePage in recent months. They also accused LePage of “only telling half of the story” by neglecting to mention his budget’s potential impacts on property taxes, road construction, schools and other municipal programs.
“Simply put, the Better Deal for Maine plan lowers property taxes for all Maine families and invests in our schools and our workers by asking the wealthy and corporations to simply pay their fair share,” said House Speaker Mark Eves, D-North Berwick.