Opening House tax votes seen as test

AUGUSTA – One day after the Senate took an initial pass on the subject of tax reform, the Maine House of Representatives on Wednesday set itself to a first round of test voting.

A preliminary tally in favor of lowering Maine’s income tax while broadening the sales tax was 87-49. The vote broke down largely along party lines, with the Democratic majority in the House leaning toward passage and the Republican minority generally opposed.

Debate in the Senate is pending.

In advance of House action Wednesday, members of the bipartisan Taxation Committee majorities that had forwarded two pieces of tax legislation to the full House and Senate held a news conference to tout the benefits of their package.

“It spans the entire spectrum of Maine people,” said Democratic Rep. Thomas Watson of Bath, a Taxation panelist, referring to the sweeping proposal’s call for income tax reductions and enhanced property tax relief financed by an expansion of the sales tax.

“I’m proud of this package. … It is real tax relief for Maine people,” said Republican Rep. Randy Hotham of Dixfield.

Rank-and-file lawmakers through the day continued to absorb leadership briefings and join in hallway consultations. An ad hoc business alliance, meanwhile, billing itself as the No Tax Shift Coalition, distributed copies of a letter written to Gov. John Baldacci urging him to join the opposition.

“This is not meaningful tax reform. It is simply a shift of the tax burden from some taxpayers to others. The proposal would increase and expand some taxes [sales, corporate income, meals and lodging] to pay for other tax reductions, mainly personal income tax,” the coalition asserted.

“The Taxation Committee deserves a great deal of thanks for attempting meaningful tax reform. They have conducted their work in an open and transparent process, which we respect and appreciate. However, the final product falls woefully short and – in our opinion – does more harm than good,” said the letter from the coalition, which ranges from the Associated Builders & Contractors of Maine to the Wine Institute and includes the Maine Association of Realtors, the Maine Forest Products Council and the Maine State Chamber of Commerce.

A so-called statutory package to overhaul the tax system would lower the top income tax rate in the current multitier system from 8.5 percent to a flat 6 percent for all. It also would hold steady the general sales tax at 5 percent, but expand it to include numerous goods and services.

To provide property tax relief, a homestead exemption would be increased, with the state funding half, and a property tax and rent rebate program known as the circuit breaker would be expanded.

A separate package of constitutional amendments also has been advanced but not fully tested. It includes a proposal to establish supermajority thresholds for the approval of changes in certain taxes.

Potential savings for Maine residents and businesses from the tax code overhaul have been estimated by state revenue officials at more than $140 million. Out-of-state taxpayers would pick up most of the difference.

“It is a tax shift,” Democratic Rep. John Piotti of Unity, a co-chairman of the Taxation Committee, said at the Wednesday morning news conference. “And we should be proud of that.”

Two senators on the Taxation Committee, Republican Richard Nass of Acton and Democrat Ethan Strimling of Portland, hit the radio talk show circuit earlier, arguing for the committee plan.

Given broad business and growing Republican opposition, prospects for passage of the complex plan remained highly uncertain.

On Tuesday, Senate Minority Leader Carol Weston, R-Montville, put her caucus on record against the package although two other members of the GOP Senate caucus, Karl Turner of Cumberland and Peter Mills of Cornville, joined Nass and others at the Taxation Committee news conference Wednesday to demonstrate support for the plan.

On Tuesday night, the office of Gov. John Baldacci issued a statement in which he expressed “concerns” but also optimism that “we can all work together to build a plan that will provide real income tax relief while also gaining bipartisan support.”

Among the options under consideration, according to participants in discussions involving the Legislature and the administration, was one to narrow the proposed broadening of the sales tax.

The Maine Heritage Policy Center argued Wednesday that the Taxation panel’s package could leave Mainers nearly $40 million in increased federal income taxes because of reduced tax deductibility.