May 10, 2013

Bold Maine tax reforms would affect many

Mainers would see a drop in property taxes – and tax credits would help low- and middle-class residents – but the bipartisan plan faces stiff opposition.

By Steve Mistler
State House Bureau

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Independent state Sen. Dick Woodbury, a Harvard-trained economist from Yarmouth, is the architect of the tax overhaul plan now before the Maine Legislature.

2005 Press Herald file

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Wiehe said some tax experts support taxing services as a way to increase revenue.

"All of our sales taxes were created back in a time when a lot of this stuff never existed," she said. "Pet grooming did not exist in 1930. It's a historical accident that these were left out of the sales tax base."


Increasing sales taxes and removing exemptions is just one part of the coalition's plan. It also hopes to increase excise taxes on lodging from 7 percent to 10 percent.

According to Maine Revenue Services, an increase of 1 percentage point would generate $6.8 million in the next fiscal year. The rate was increased to 7 percent on July 16, 1986.

The plan also would increase the cigarette tax from $2 to $3.50 per pack, generating an estimated $58.6 million in the next fiscal year. The rate was last increased, from $2 to $3 per pack, in 2005.

Another $8 million would be generated from taxing other tobacco products at the same rate as cigarettes. About $3 million in revenue would come from increasing sales taxes on short-term auto rentals, from 10 percent to 15 percent.

All of the proposals have generated opposition from industry groups.

Scott Drenkard, economist for the Tax Foundation, said increasing excise taxes goes against free-market ideals.

"I see excise taxes as taxes that are designed to distort choices of people," he said. "I don't support the idea that we should tax certain products because they're politically expedient or they're better for us."

There's also a sustainability issue, said Wiehe.

She said the cigarette tax hike can curb consumption, and that's why health advocates lobby for increased tobacco taxes. Fewer smokers mean less excise tax revenue.

"You can raise a massive chunk of money through a massive cigarette tax hike, but that amount could erode over time," she said. "Banking a reform plan on an excise tax can be problematic."


The response to the coalition's concept tax reform bill has been tepid at best.

"They have some daring ideas," David Clough of the National Federation of Independent Business said in a recent statement. "High taxes dampen growth and jobs, and they seem to realize that small business is the engine of growth in Maine."

So far, the most common description of the plan is "bold."

But with boldness comes anxiety.

"You can't have a comprehensive plan without having winners and losers," Wiehe said.

And there are deep ideological divisions over whether cutting income taxes is an effective pro-growth approach.

Drenkard and conservative groups like the Tax Foundation say it is. The Institute on Taxation and Economic Policy, Wiehe's group, says it isn't.

Wiehe said she really likes many elements of the Maine plan, but she's not quite sold.

"Unlike other tax swaps, it doesn't appear to be a huge tax cut for the wealthy and a huge tax hike for most everyone else," she said. "But I don't necessarily think that this plan helps to balance the three pegs of the revenue stream stool. I think it could throw it off balance."

Woodbury and the coalition hope to make a different argument Friday.

"This plan basically balances," he said. "It's going to need some tweaking, but it balances with a 4 percent income tax and a $50,000 homestead exemption.

"Do we want to do that? Maybe not, but let's talk about it," he said. 

Steve Mistler can be contacted at 620-7016 or at:

Twitter: @stevemistler


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