Panel mulls adjustments to income, sales taxes

AUGUSTA – Taxation Committee leaders forged a narrow Democrat-dominated majority Wednesday behind a plan to broaden Maine’s sales tax and reduce income taxes.

The 7-6 vote for the plan came over the objections of Republicans who maintained any tax system overhaul should be accompanied by mandatory curbs on government spending.

“This is what the restructuring needs to be if we’re going to do reform,” said independent Rep. Richard Woodbury of Yarmouth, who lined up with the panel’s six Democrats to form a majority and played a major role in drafting the plan.

Speaking for the GOP opposition, Republican Sen. Jonathan Courtney of Sanford said, “We need constitutional spending reform.”

The committee majority plan resembles one introduced earlier by Woodbury and his co-chairman, Democratic Sen. Joseph Perry of Bangor. It would increase a low income tax credit, conform the standard deduction and personal exemption to federal levels and drop the state’s top income tax rate from 8.5 percent to 8.25 percent in 2006 and to 7.9 percent in 2007.

It would bolster property tax relief programs known as the homestead exemption and circuit breaker.

To expand the sales tax base, the plan calls for the repeal of or revisions to numerous exemptions, ranging from long-term rentals to funeral services. It would extend the sales tax to a variety of personal, home and business services and amusement and recreation items.

The plan additionally would hike the meals and lodging tax from 7 percent to 8 percent, boost excise taxes on beer and wine and set an excise tax on soft drinks.

Supporters said the package would offer net gains.

“Every Maine family, every Maine business is going to benefit from this,” said Democratic Sen. Ethan Strimling of Portland.

Critics challenged claims of reform.

Republican Rep. Harold Clough of Scarborough called the proposal “thought-provoking,” but said it would amount to a tax increase.

Proponents said the plan, with all its tax shifts, would generate $66.3 million for fiscal 2006 and $80.6 million for fiscal 2007 that could be set aside in a budget stabilization fund.

Other lawmakers and Gov. John Baldacci have been discussing ways to come up with $250 million in new budget cuts or revenue that could be used to replace a controversial borrowing provision contained in the pending two-year state budget slated to take effect July 1.

The borrowing plan has become the target of a people’s veto petition drive endorsed by Republican lawmakers.

The borrowing provision could be stayed if people’s veto organizers submit 50,519 petition signatures to state election officials by June 28. The secretary of state would then have 30 days to determine the validity of signatures.

If the petitions are determined to be valid, the people’s veto proposal would go on statewide ballots on Nov. 8. If the petitions are invalidated, the suspended budget provision would go back into effect, according to state officials.

House and Senate leaders have been looking to have lawmakers wrap up their business for the year next week.

Baldacci administration officials Wednesday were planning to provide the appropriations committee with copies of the latest departmental plans for achieving 5 percent spending cuts throughout state government.

Also being dusted off for review was a decade-old summary report of a state Productivity Realization Task Force.