AUGUSTA – Lawmakers on the Taxation Committee will begin hearing from Maine businesses today about the impact they expect Gov. Paul LePage’s tax break proposals would have on the state’s economic climate.

LePage, a Republican, campaigned on improving Maine’s business climate, and his proposed budget includes about $203 million in tax breaks over the next two years that his administration says are designed to do just that.

The cuts include reducing the income tax paid by most Mainers from 8.5 percent to 7.95 percent, beginning in 2013; providing an incentive to businesses for making investments; doubling the value of estates eligible for tax exemptions, and several other changes designed to more align Maine’s income tax code with the federal one.

But lawmakers on both sides of the aisle say they have questions about whether the specific cuts proposed by LePage offer Maine businesses the best value. The five-member bipartisan subcommittee of the tax panel — scheduled to meet today, Wednesday and the following Wednesday — is charged with gathering additional data and reviewing LePage’s proposals.

“My problem is the resources are so limited and so crucial with the economy the way it is, it’s important that we get as much bang for our buck as possible,” said state Sen. David Trahan, R-Waldoboro, the Senate chair of the Taxation Committee.

Trahan said he has spoken with LePage and believes he will be open to potential alternatives from the Taxation Committee.

Both Trahan and state Rep. Elsie Flemings, D-Bar Harbor, said committee members are looking specifically at LePage’s proposal to conform with the federal tax code by offering a bonus tax incentive for businesses making certain investments.

Only about 12 states offer the same break that the federal government does, according to BNA Software, which offers tax and accounting support for businesses.

The change costs $57.4 million of the total $203 million in tax breaks over the two-year budget, according to Sawin Millett, commissioner of the Department of Administrative and Financial Services.

But lawmakers are concerned because they say the tax break could go to multistate companies that make investments in places other than Maine.

“There’s a huge amount of money spent on this bonus depreciation that may benefit multistate corporations more than Maine businesses,” said Flemings, a subcommittee member. “So we’ll be looking at all those pieces and trying to figure out the best way to move forward in terms of tax policy and making sure our priorities are benefiting Maine businesses and families.”

Trahan said he’s asked Maine business leaders to recommend tax changes that would most benefit the state as a whole.

“Business groups said bonus depreciation benefits some of our businesses and not so much others,” he said.

One criticism from some Democrats is that the tax changes — particularly the estate tax change, which would double the value allowed for tax exemption from $1 million to $2 million of inheritance — are skewed to benefit Maine’s wealthiest residents, while spending cuts are being borne by the neediest.

Flemings said she will be looking at the budget proposals in their entirety, not just the tax portion, in order to find a balance she’s comfortable with.

“We may want to be narrowing down what we choose to spend money on in terms of looking at the overall budget, because there are other portions of the budget that could be seen as tax increases on Maine families,” she said.

“Maybe we want to change those pieces and make sure that the budget overall is equitable,” she said.

Trahan also said he is not assuming that LePage’s proposal for about $203 million in tax breaks would be intact after the Appropriations Committee works through the budget.

“The reality is, budgets change and some of the things in the pension plan may not make it, and that’ll lower how much money we have for tax relief,” he said. “We have to find the combination of tax incentives that we all feel comfortable with. I’m trying to reach out and work on a budget because we need a two-thirds vote.”

LePage’s proposal to change the formula for sharing revenue with municipalities also has those on the local level anticipating property tax increases.

“There’s no doubt about it, it will have a property tax impact,” said Geoff Herman, a lobbyist with the Maine Municipal Association. Even though municipalities would receive more money from the state than in the last budget, they would get less than the usual formula calls for.

“Of the big three taxes in Maine — sales, income and property — property is currently generating 43 percent of the total, income is 34 percent and sales is 23 percent,” Herman said. “That’s a balance issue that we’re very concerned about.”

Millett said municipalities would receive increased funding from the proposed budget over current budget funding levels.

“When you increase general purpose aid by $63 million, you increase revenue-sharing by $10 million over the biennium, you increase homestead reimbursement by $7.5 million over the current year and maintain it in the second year, you are giving more money to the municipalities than they are getting in the current year,” he said. “There’s no other way to say that.”

Trahan, who expects the Taxation Committee to take final votes in about a month, said he was impressed with the governor for prioritizing tax cuts for Mainers in his first budget.

“The fact that he made this a priority and put something in the budget for us to work with, he deserves a lot of credit for that,” he said.

MaineToday Media State House Writer Rebekah Metzler can be contacted at 620-7016 or at:

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