May 6, 2013

Do the issues or politics rule tax reform debate?

By Steve Mistler smistler@pressherald.com
State House Bureau

As Rep. Lance Harvell, R-Farmington, put it, there are "hundreds of land mines" in the dramatic tax reform package that he and 10 other lawmakers are co-sponsoring.

There's the tax on groceries.

The higher tax on cigarettes, beer and wine.

The tax on services.

The higher sales tax.

According to the so-called Gang of 11, all of those taxes are designed to pay for tax relief, specifically slashing the income tax in half and lowering property taxes for Maine residents.

The proposal is laden with ramifications for select industries and residents, which is why some at the State House are predicting its failure before it has a public hearing.

However, should lawmakers scuttle the tax reform package, it may have as much to do with the mutual distrust between Democrats and Republicans and scars from the last significant tax reform bill as it does lawmakers' rejection of the bill's policy implications.

Before the proposal's official unveiling on Wednesday, the prevailing unofficial reaction in the State House hallways went something like this:

Republicans: The proposal is a "Trojan horse" for additional tax increases.

Democrats: We've been down this road before.

The Republican sentiment apparently stems from the belief that the Democratic leaders cooked up the bill and plan to use it -- and the cloak of bipartisanship -- to push through additional tax increases.

Democrats, meanwhile, recall 2009, when former Democratic state Rep. John Piotti launched his own bipartisan tax reform effort. There are differing opinions on how the Piotti lost Republican support for the bill, but the result was that Democrats used their majority to pass it anyway.

Those who follow Maine politics know the rest: Republicans, aligning with ticked-off interest groups affected by the new tax law, later repealed it via people's veto.

In addition, there's general agreement that the June veto campaign helped Republicans gain control of the Legislature in 2010 because the party's campaign apparatus and messaging were already in place for the November election.

The 2010 tax reform fight may be history, but it looms over the new proposal. The bill looks a lot like Republican-led tax reform efforts currently under way in other states, but Maine Republicans think it looks a lot like the 2009 bill they worked to defeat. The Piotti measure Democrats pushed in 2009 was a less dramatic proposal, but even if the current leaders could persuade their caucus to support a regressive sales tax increase, they don't trust that Republicans won't bail at the last minute and later use the reform as a campaign issue.

Taken together, it would appear the new tax reform bill is dead on arrival.

Or maybe not.

The tax reform bill is budget-neutral, meaning it could effectively replace the cuts and spending in Gov. Paul LePage's budget proposal. Both parties -- and the governor himself -- don't particularly care for the LePage budget.

But there are no other budget-neutral proposals. House Majority Leader Seth Berry, D-Bowdoinham, has proposed a "fair share" bill that would generate revenue, but Republicans aren't likely to support the measure.

So what's the alternative? Right now, nothing, except the promise from both parties that the Legislature's budget-writing committee will craft some kind of compromise.

Two members of the Gang of 11, Sen. Emily Cain, D-Orono, and Rep. Dennis Keschl, R-Belgrade, are also members of that panel -- the Appropriations and Financial Affairs Committee.

That may prove significant.

Even if the tax reform proposal is DOA, elements of the plan could end up in the Legislature's budget counterproposal. That may not result in the wholesale reform that the Gang of 11 has proposed, but it could be something.

(Continued on page 2)

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