AUGUSTA — Democratic leaders in the Legislature are planning a push for tax reform this session, revamping an earlier proposal to the chagrin of some Republicans who say it doesn’t do enough to reduce the tax burden on Maine citizens.
The core of the Democrats’ plan is reducing the state’s top income tax rate while broadening the sales tax to include more discretionary items and some services. The proposal, which is still under development, would also provide a tax credit for lower-income Mainers to ensure they are not hurt by the new flat-rate system.
House Majority Leader John Piotti (D-Unity) said the plan would generate up to $70 million in overall tax relief for Mainers by shifting some tax revenue to goods and services used by visitors.
“It’s not only matter of how much you collect in taxes. It’s a matter of what kind of taxes you collect,” said Piotti. “Our income tax rate can be a disincentive for people to locate here or move businesses here.”
Senate Minority Leader Kevin Raye (R-Washington County) said the key for his party will be whether the measure creates tax relief without merely shifting the burden from one group to another.
“I’m never comfortable to dismiss something out of hand,” he said. “I don’t have all the particulars of it, but I’ve heard from a number of people, particularly in the tourism industry and others, and they’re very vulnerable at the moment.”
Maine’s top income tax rate of 8.5 percent is tied with the District of Columbia as the sixth highest in the nation, according to data on the Federation of Tax Administrators’ Web site. Also, any Mainer who earns more than $20,150 in taxable income pays the full 8.5 percent. That goes for small businesses, too.
Piotti said that in addition to Maine’s high income tax, Maine’s “incredibly narrow” sales tax includes only 24 out of 180 items taxed by other states. About one-third of Maine’s sales tax revenue comes from car sales and building supplies, two areas that are hit hard when the economy sours. Broadening the sales tax would soften that impact, said Piotti.
Senate President Libby Mitchell (D-Kennebec County) said a bill will be introduced within a couple weeks.