The chairmen of the Legislature’s Taxation Committee are proposing a sweeping overhaul of the state’s tax system – lowering the sales tax rate to 4 percent while taxing almost everything that is now exempt, and eliminating the income tax for thousands of Maine families.

Sen. Joe Perry, D-Penobscot and Rep. Richard Woodbury, an independent from Yarmouth, included something for everyone to either hate or love in their bill, from raising the meals and lodging tax to giving Mainers more of the same income tax breaks already afforded by the federal government. The proposal also hits sin taxes – raising them on cigarettes, wine and beer – and more than doubles the real estate transfer tax.

The goal of the tax reform package, which will get a public hearing next Tuesday, is to be revenue neutral, by not raising the state’s overall tax burden but rather redistributing that burden among income, sales and property taxes. Maine is one of the most heavily taxed states in the country, particularly when you look at people’s ability to pay.

“We’d like to start the discussion about the possibility of doing something really significant,” said Rep. Woodbury.

A public hearing on the Perry-Woodbury bill and eight other less sweeping tax reform proposals is scheduled for Tuesday, May 3, in the Statehouse, Room 127.

Even members of their own committee were caught off guard by the proposal, announced after the committee’s regular work on Monday. Several said they felt left out of the loop and were put off by a proposal from the two chairmen that didn’t represent committee consensus.

Sen. Perry said he wanted everything in one bill – from a flat income tax rate to charging sales tax on groceries – so people can decide what they want out of tax reform.

“Everybody wants us to fix it, but they don’t want their special interest taxed,” he said.

Asked whether the proposal had a chance before Gov. John Baldacci, who has said he wants no new broad-based taxes, Sen. Perry said, “if we get two-thirds support in the House and Senate,” the bill wouldn’t need the governor’s approval.

Gov. John Baldacci was expected to have his own tax reform proposal out on April 15, but nothing had been released as of Monday afternoon. His office said late last week they were still “polishing” the details.

The plan is expected to propose gradually phasing out the tax on personal property, including business equipment – eventually eliminating the need for the state’s Business Equipment Tax Reimbursement program. There also was talk of allowing a local option sales tax to pay for specific projects like a new civic center in Portland, but that is being opposed by business associations and tourist groups.

The Perry-Woodbury proposal touches all three of the state’s major taxes – income, sales and property – and would:

• create a flat, 6 percent income tax rate.

• increase to $28,700 the amount that can be earned by a family of four with no income tax obligation.

• raise the standard deduction to federal levels and eliminate the marriage penalty.

• restore the child and dependant care credit to 25 percent of the federal credit.

• raise the maximum benefit under the Circuit Breaker property tax rebate program for lower-income homeowners and renters to $3,000.

• increases the real estate transfer tax to $10 per $1,000, up from $4.40, but refund half of the tax paid on primary residences.

• increase the meals and lodging tax, currently at 7 percent, to 8 percent on meals and 10 percent on lodging.

• increase the cigarette tax by 50 cents per pack and the tax on smokeless tobacco and smoking tobacco to 100 percent of the wholesale price.

• increase the excise tax on beer to 50 cents per gallon and on wine to $1 per gallon.

• reduce the sales tax rate to 4 percent, down from 5, but broaden the base to include almost everything except the materials used in the manufacturing process.

That broadening proposal is expected to bring out lobbyists and special interest groups in droves. Not only would it hit things like services and amusements – most often discussed when broadening the sales tax is proposed – it would tax staples like groceries, oil and electricity.

Perry said he doesn’t believe “the average Maine taxpayer wants a tax on fuel or groceries,” but the idea is to “put everything on the table.”

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