The elusive butterfly of tax reform As Maine changes, so should its tax code

Since 1965, the people of Maine have witnessed a lot of changes in how they live and work. People 42 years ago probably would not believe that today they would be walking around with a cell phone or have the ability to communicate instantly via the Internet with someone across the world or in the house down the street.

One thing that has not changed in the past 42 years is Maine’s tax code. One of the biggest problems with our tax code is that it puts too much pressure on our state’s income-tax code and on Maine homeowners. The next biggest source of revenue for our state is the sales tax. While our income taxes and property taxes are high by most accounts, our sales tax is very narrow. Of the 168 categories of items taxed by other states, Maine taxes only 24. Connecticut by comparison taxes 80 categories. When Maine’s economy experiences a downturn, people buy fewer big-ticket items like cars. As a result of reduced state revenues, health care services, road and bridge repair, and education funding take a big hit at the state level due to these fluctuations during economic downturns.

Moving beyond the normal partisan divide that often accompanies the debate on taxes, I am pleased to say that the Legislature’s Taxation Committee has come forward with a truly bipartisan tax reform proposal that will provide tax relief to more than 90 percent of all Maine people.

For example, under this comprehensive plan, our state’s income tax would drop from 8.5 percent to 6 percent. The tax rate would be the same for everyone, but, to balance things out, a tax credit would be applied on a progressive scale to help individuals and families at different income levels. Applying this change to our income-tax code would move Maine from the seventh highest income tax rate in the country to the 34th. About 94 percent of all filers would see an average reduction of $377.

In addition to income tax reform, my colleagues and I have proposed expanding Maine’s Homestead Exemption from $13,000 to $26,000. Essentially, the first $26,000 of the value of an individual or family’s home would be tax exempt. In addition, the Circuit Breaker program, another tax-relief program would expand to help homeowners and renters.

To help lower income taxes and property taxes, Maine’s sales tax will expand to include services or amusement items that have traditionally been exempt. One example would be personal care services such as spas, tanning salons and tattoos. Amusement parks and repair services will also be included under the new sales tax. Again, most other states apply their sales tax to these items.

During our research, we also discovered tourists actually take a tax vacation when they come to Maine because they pay lower lodging taxes then they would in their own state. As a result, the committee recommended a modest increase in the meals and lodging tax from 7 percent to 8 percent to help with overall tax relief.

Another modest change in the new tax-reform package is a small increase in the real-estate transfer tax. Similar to lobbyists who mislead the public during the school district consolidation plan, lobbyists from the Maine Association of Realtors are spending thousands of dollars to see to it that people who buy million dollar homes don’t have to pay more in taxes. While it is true that the tax on the sale of homes will go up, the tax is split by the buyer and seller. Most homeowners will recoup the tax within the first year with the expansion of the Homestead Exemption. Again, unless you are buying a million-dollar house, then you will see more relief than if you are buying a home under this package in comparison to our current tax system. By the way, even with a small increase, the transfer tax will still be much lower than New Hampshire’s tax.

Some have said why not just cut government to provide the tax relief. In this year’s budget cycle, we did. However since our biggest areas to cut are education and health care services, these cuts usually have a substantial impact on our communities. While cuts were made, the more sensible approach for our state is to rebalance our tax code. This bipartisan tax-reform package will cut $140 million in taxes for Maine businesses and residents. People have been waiting for this kind of reform, now is the time to act.

Sen. Joe Perry, D-Bangor, is the Senate chairman of the Taxation Committee and represents Senate District 32.