September 8, 2011

Lawmakers grapple with tax cut issues

By Susan M. Cover
State House Bureau

AUGUSTA -- Efforts to lower the state income tax dramatically will be discussed again by lawmakers in the coming months, but Taxation Committee members said Wednesday that they will need a united front if any plan is to move forward.

The legislative panel debated whether to form a new blue ribbon commission to study the issue or adopt an aggressive timeline calling for a vote by the Legislature no later than April. They decided to ask experts -- economists, accountants, professors -- to meet with a legislative subcommittee, which would give lawmakers ideas for how to move forward.

"I hope it's our goal to take action," said Rep. David Burns, R-Alfred. "It's not a study. It's to take studies from the past and take action."

Most of Wednesday's discussion centered on lowering the income tax to 4 percent or 4.5 percent. Earlier this year, the Legislature voted to bring down the top rate from 8.5 percent to 7.95 percent effective Jan. 1, 2013. Many committee members said they believe the state needs to do something more dramatic.

"We should have a long-term goal of opening up eyeballs around the country as far as how the nation is going to look at Maine," said Rep. Paul Bennett, R-Kennebunk.

Figures from Maine Revenue Services show that a reduction to 4 percent or 4.5 percent would cause a revenue loss of $250 million to $500 million a year. That would be in addition to the $400 million loss in the 2014-15 budget because of the tax cuts already approved by lawmakers.

Legislators said that if they propose additional tax cuts, they want to suggest ways to pay for them, including the elimination of tax exemptions or an increase in the sales tax.

At least one lawmaker said spending should be cut to meet the need.

"The state has a spending problem," said Rep. Ryan Harmon, R-Palermo. "From the spending problem, we have a high tax problem."

Rep. Don Pilon, D-Saco, said that in the past, lawmakers have discussed getting rid of exemptions, but lobbyists have foiled those attempts.

"There's got to be some stomach and strength on this committee to say we're going to tax this industry or we're going to raise the rate to get where we need to go," he said. "That's always been the stumbling block on this committee."

Rep. Richard Woodbury, an independent from Yarmouth, said the committee must consider lowering the income tax and spreading more of the burden onto nonresidents, including vacationers, people who own second homes in Maine, and retirees who live in Maine just under half of the year.

"We have an enormous number of people here as nonresidents," he said. "All of them are exempt from the income tax but they pay consumption taxes."

In recent months, Gov. Paul LePage has talked to residents across the state about his idea to eliminate the income tax on pensions. To eliminate the tax on all pensions would cost $93 million, although he could propose carving out a specific group as a starting point.

While LePage has said he will propose the change when the Legislature returns in January, the idea was not discussed Wednesday by Taxation Committee members.

The committee's House chairman, Rep. Gary Knight, R-Livermore Falls, said the committee wants to take a more comprehensive approach.

He said the committee will need a strong bipartisan committee vote to win approval for any plan from the Legislature.

Senate Chairman David Trahan, R-Waldoboro, suggested sending the proposal to the voters for final approval. Rep. Seth Berry, D-Bowdoinham, agreed.

"I think that's an excellent idea," he said. "Ultimately, people will have their final say on this."


Susan Cover -- 620-7015

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